Optimal admission and production policies in reverse logistics management

The growing concern on environmental issues has resulted in an interest in environment-friendly manufacturing technologies over the last few decades. Today, customers think more favorably of environmentally responsible companies. Also, with new legal directives, manufacturers are becoming responsible regarding issues such as the disposal of their products. A widely used form of environment-friendly manufacturing is the so-called remanufacturing. The main purpose of remanufacturing is to increase the quality of used products to the standards of a new product by replacing worn-out or outdated parts or combining with new technologies. Although remanufacturing comes with additional costs due to supplementary logistics operations such as collecting and stocking return inventories, it also generates cost savings because remanufacturing is rather cheap as compared to traditional manufacturing. Hence, it is of significant importance for OEMs to control manufacturing and remanufacturing operations effectively and harmoniously. The current work is motivated by an OEM that supplies a single product for customer demand. The OEM uses a hybrid production system where both manufacturing and remanufacturing operations can be carried out. Hence, besides manufacturing new products, it collects and remanufactures outdated and/or broken products. The production runs on a make-to-order basis regardless of the production method of choice. Hence, no serviceable inventory is kept. We consider the problem admission and the production controls in the production system described above, and aim at characterizing the optimal policy structures.