Reverse supply chain plan for remanufacturing commercial returns

Abstract

The flow of commercial returns, products returned by customers for any reason within 90 days of sale, is a significant concern for many manufacturers. The total value of these returns is estimated at about $100 billion a year in the USA. In order to reduce their negative impacts on the environment and prevent high disposal costs, these returned products need to be properly handled, processed, and, if applicable, remanufactured, recycled, or reused. However, since the primary focus of most manufacturers is the forward supply chain, a large proportion of the returned products’ value is lost. Two key decision policies affecting the performance of such systems are the target quality for components used in the primary product and duration of the time returned products are accumulated before they are remanufactured. High targeted quality increases the production cost but cuts on product return rate. Long accumulation time, on the other hand, increases production lot sizes for remanufacturing that results lower remanufacturing costs per unit product. When there is a market for remanufactured products the tradeoff between profit from selling primary products and that of remanufactured units may justify targeting a lower than perfect quality and still maximize the total profit. And this could be achieved without negative effects on environment. In this work, a model for a forward/reverse supply chain is developed to satisfy a fixed demand with a combination of new and remanufactured products. The objective is to maximize the total profit as a function of two above decision factors. The application of the proposed model has been demonstrated by several numerical examples.