Optimal Pricing and Production Strategies in Closed-Loop Supply Chains with Convex Recovery Costs, Variable Returns Quality and Remanufacturing Losses

Abstract

The management of remanufactured products has become an important issue for manufacturers because of the associated economic benefits and the sustainability legislation adopted by governments. Pricing strategy is a key factor in the remanufacturing process as it controls demand cannibalization between new and remanufactured products. This thesis proposes two models to investigate the optimal production and pricing strategies which maximize the total profit of an organization engaging in remanufacturing in a monopolistic environment. Both models are formulated to be more general than current models by incorporating a convex collection and inspection cost, sorting returns into two quality bins and considering remanufacturing losses. Utility theory is used to derive the demand functions according to the customers' tolerance for remanufactured products. The obtained convex programming models are solved to determine the optimal production and pricing strategies. Multiple sets of numerical examples are conducted to investigate the sensitivity of the optimal strategies.