Optimal acquisition, inventory and production decisions for a closed-loop manufacturing system with legislation constraint

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October 2015, 11(4): 1355-1373. doi: 10.3934/jimo.2015.11.1355

Optimal acquisition, inventory and production decisions for a closed-loop manufacturing system with legislation constraint

Xiaochen Sun ^1, , Fei Hu ^1, , Yancong Zhou ^2, and Cheng-Chew Lim ^3,

1.	School of Science, Tianjin University, Tianjin 300072, China, China
2.	School of Information Engineering, Tianjin University of Commerce, Tianjin 300134, China
3.	School of Electrical and Electronic Engineering, The University of Adelaide, SA 5005

Received March 2013 Revised October 2014 Published March 2015

Abstract
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In order to improve the utilization efficiency of resources, more and more countries have required manufacturing firms to remanufacture or reuse used products through legislation. For many firms, the profit from reusing used products may be less than the profit from producing new products, so how to make decisions under such legislation constraint is a major concern by these firms. In this paper, we study the optimal acquisition, inventory and production decision problem for such firms under a two-period setting, where firms have two different production ways: (i) production with new raw materials, and (ii) production with used products. The return quantity of used products at the second period depends on the demand of the first period and the acquisition effort. The problem is formulated as a stochastic dynamic programming model. We give the optimal production rule and the optimal inventory decision at the second period, and prove the existence of an optimal policy with a simple structure at the first period. Moreover, based on our theoretical analysis, we calculate the optimal decisions under different parameter settings, and discuss how the firm does react when facing with specific market and production conditions.

Keywords: legislation constraint., stochastic dynamic programming, Inventory, acquisition pricing, manufacturing and remanufacturing system.

Mathematics Subject Classification: Primary: 90B05, 90B30; Secondary: 93E2.

Citation: Xiaochen Sun, Fei Hu, Yancong Zhou, Cheng-Chew Lim. Optimal acquisition, inventory and production decisions for a closed-loop manufacturing system with legislation constraint. Journal of Industrial and Management Optimization, 2015, 11 (4) : 1355-1373. doi: 10.3934/jimo.2015.11.1355

References:

[1]	B. Atamer, I.Bakal and Z. Pelin BayIndIr, Optimal pricing and production decisions in utilizing reusable containers, Int. J. Product. Econ., 143 (2013), 222-232. doi: 10.1016/j.ijpe.2011.08.007.
[2]	I. Bakal and E. Akcali, Effects of random yield in reverse supply chains with price-sensitive supply and demand, Prod. Oper. Manag., 15 (2006), 407-420.
[3]	S. Boyd and L. Vandenberghe, Convex Optimization, Cambridge University Press, Cambridge, 2004. doi: 10.1017/CBO9780511804441.
[4]	R. Dekker, M. Fleischmann, K. Inderfurth and L. N. V. Wassenhove, Reverse Logistics: Quantitative Models for Closed-Loop Supply Chains, Springer-Verlag, Heidelberg, 2004.
[5]	I. Dobos and K. Richter, A production/recycling model with stationary demand and return rates, Cent Eur. J Oper. Res., 11 (2003), 35-46.
[6]	M. Fleischmann, J. Bloemhof-Ruwaard, R. Dekker, E. van der Lann, J. van Nunen and L. N. V. Wassenhove, Quantitative models for reverse logistics: A review, Eur. J. Oper. Res., 103 (1997), 1-17.
[7]	M. R. Galbreth and J. D. Blackburn, Optimal acquisition and sorting policies for remanufacturing, Prod. Oper. Manag., 15 (2006), 384-392.
[8]	V. D. R. Guide Jr. and V. Jayaraman, Product acquisition management: Current industry practice and a proposed framework, Int. J. Prod. Res., 38 (2000), 3779-3800.
[9]	V. D. R. Guide Jr., R. H. Teunter and L. N. V. Wassenhove, Matching demand and supply to maximize profits from remanufacturing, Manufacturing and Service Operations Management, 5 (2003), 303-316.
[10]	I. Karakayal, H. Emir-Farinas and E. Akal, Analysis of decentralized collection and processing of end-of-life products, J. Oper. Manag., 25 (2007), 1161-1183. doi: 10.1016/j.jom.2007.01.017.
[11]	I. Karakayal, H. Emir-Farinas and E. Akal, Pricing and recovery planning for remanufacturing operations with multiple used products and multiple reusable components, Comput. Ind. Eng., 59 (2010), 55-63.
[12]	G. P. Kiesmuller and E. A. van der Laan, An inventory model with dependent product demands and returns, Int. J. Product. Econ., 72 (2001), 73-87. doi: 10.1016/S0925-5273(00)00080-3.
[13]	F. Hillier and J. Lieberman, Introduction to Operations Research, $4^{nd}$ Edition, Holden-Day, Oakland, California, 1986.
[14]	E. L. Porteus, Foundation of Stochastic Inventory Theory, Stanford University Press, Palo Alto, California, 2002.
[15]	S. M. Ross, Introduction to Stochastic Dynamic Programming, Academic Press, New York, 1983.
[16]	X. Sun, Y. Li, G.Kannan and Y.Zhou., Integrating dynamic acquisition pricing and remanufacturing decisions under random price-sensitive returns, Int. J. Adv. Manuf. Tech., 68 (2013), 933-947. doi: 10.1007/s00170-013-4954-5.
[17]	X. Xu, Y. Li and X. Cai, Optimal polices in hybrid manufacturing/remanufacturing systems with random price-sensitive product returns, Int. J. Prod. Res., 50 (2012), 6978-6998.
[18]	X. Zhou and Y. Yu, Optimal product acquisition, pricing, and inventory management for systems with remanufacturing, Oper. Res., 59 (2011), 514-521. doi: 10.1287/opre.1100.0898.

show all references

References:

[1]	B. Atamer, I.Bakal and Z. Pelin BayIndIr, Optimal pricing and production decisions in utilizing reusable containers, Int. J. Product. Econ., 143 (2013), 222-232. doi: 10.1016/j.ijpe.2011.08.007.
[2]	I. Bakal and E. Akcali, Effects of random yield in reverse supply chains with price-sensitive supply and demand, Prod. Oper. Manag., 15 (2006), 407-420.
[3]	S. Boyd and L. Vandenberghe, Convex Optimization, Cambridge University Press, Cambridge, 2004. doi: 10.1017/CBO9780511804441.
[4]	R. Dekker, M. Fleischmann, K. Inderfurth and L. N. V. Wassenhove, Reverse Logistics: Quantitative Models for Closed-Loop Supply Chains, Springer-Verlag, Heidelberg, 2004.
[5]	I. Dobos and K. Richter, A production/recycling model with stationary demand and return rates, Cent Eur. J Oper. Res., 11 (2003), 35-46.
[6]	M. Fleischmann, J. Bloemhof-Ruwaard, R. Dekker, E. van der Lann, J. van Nunen and L. N. V. Wassenhove, Quantitative models for reverse logistics: A review, Eur. J. Oper. Res., 103 (1997), 1-17.
[7]	M. R. Galbreth and J. D. Blackburn, Optimal acquisition and sorting policies for remanufacturing, Prod. Oper. Manag., 15 (2006), 384-392.
[8]	V. D. R. Guide Jr. and V. Jayaraman, Product acquisition management: Current industry practice and a proposed framework, Int. J. Prod. Res., 38 (2000), 3779-3800.
[9]	V. D. R. Guide Jr., R. H. Teunter and L. N. V. Wassenhove, Matching demand and supply to maximize profits from remanufacturing, Manufacturing and Service Operations Management, 5 (2003), 303-316.
[10]	I. Karakayal, H. Emir-Farinas and E. Akal, Analysis of decentralized collection and processing of end-of-life products, J. Oper. Manag., 25 (2007), 1161-1183. doi: 10.1016/j.jom.2007.01.017.
[11]	I. Karakayal, H. Emir-Farinas and E. Akal, Pricing and recovery planning for remanufacturing operations with multiple used products and multiple reusable components, Comput. Ind. Eng., 59 (2010), 55-63.
[12]	G. P. Kiesmuller and E. A. van der Laan, An inventory model with dependent product demands and returns, Int. J. Product. Econ., 72 (2001), 73-87. doi: 10.1016/S0925-5273(00)00080-3.
[13]	F. Hillier and J. Lieberman, Introduction to Operations Research, $4^{nd}$ Edition, Holden-Day, Oakland, California, 1986.
[14]	E. L. Porteus, Foundation of Stochastic Inventory Theory, Stanford University Press, Palo Alto, California, 2002.
[15]	S. M. Ross, Introduction to Stochastic Dynamic Programming, Academic Press, New York, 1983.
[16]	X. Sun, Y. Li, G.Kannan and Y.Zhou., Integrating dynamic acquisition pricing and remanufacturing decisions under random price-sensitive returns, Int. J. Adv. Manuf. Tech., 68 (2013), 933-947. doi: 10.1007/s00170-013-4954-5.
[17]	X. Xu, Y. Li and X. Cai, Optimal polices in hybrid manufacturing/remanufacturing systems with random price-sensitive product returns, Int. J. Prod. Res., 50 (2012), 6978-6998.
[18]	X. Zhou and Y. Yu, Optimal product acquisition, pricing, and inventory management for systems with remanufacturing, Oper. Res., 59 (2011), 514-521. doi: 10.1287/opre.1100.0898.

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