Manufacturing and remanufacturing strategies under uncertain product demand

Effective and efficient closed-loop supply chain processes can constitute a significant competitive edge for companies. However, the integration of forward and reverse processes poses some challenges both on the supply side - e.g. availability of remanufacturable products - and on the demand side, e.g. cannibalization between new and remanufactured products. In this paper a model for studying supply side interactions is presented. In a two-period setting with uncertain demand a newsvendor-type approach is used to characterize the optimal production and remanufacturing policies. The main emphasis is on the link between production and sales of new products and the resulting subsequent supply of used products. Further, the issue of storing excess production is addressed and the substitution effect between inventories and remanufacturable products is quantified.