A cost model for optimizing the take back phase of used product recovery

Taking back the end-of-life products from customers can be made profitable by optimizing the combination of advertising, financial benefits for the customer, and ease of delivery (product transport). In this paper we present a detailed modeling framework developed for the cost benefit analysis of the take back process. This model includes many aspects that have not been modeled before, including financial incentives in the form of discounts, as well as transportation and advertisement costs. In this model customers are motivated to return their used products with financial incentives in the forms of cash and discounts for the purchase of new products. Cost and revenue allocation between take back and new product sale is discussed and modeled. The frequency, method and cost of advertisement are also addressed. The convenience of transportation method and the transportation costs are included in the model as well. The effects of the type and amount of financial incentives, frequency and method of advertisement, and method of transportation on the product return rate and the net profit of take back were formulated and studied. The application of the model for determining the optimum strategies (operational levels) and predicting the maximum net profit of the take back process was demonstrated through a practical, but hypothetical, example.