ABSTRACT
Traditional inventory models consider the characteristics of traditional manufacturing systems in which brand new parts are used to produce brand new products. They do not address the issues peculiar to product returns. Consideration of the product returns and remanufacturing options causes two additional complexities in traditional inventory management approaches (Inderfurth and van der Laan, 2001):
1. Uncertainty associated with product returns: Although producers have some tools (viz., incentives, discounts, buyback campaigns) to control product returns, quality, quantity, and timing of product returns are highly stochastic. Increasing safety stocks can be a natural solution to preventing backorders. However, this solution results in excessive holding costs. If the environmental legislation requires the producer to accept all product returns, it may end up receiving more product returns than it needs in remanufacturing operations. In that case, a viable solution alternative is the disposal of excess inventories, which increases disposal costs. In order to deal with these issues, inventory models developed for remanufacturing systems must have the ability to achieve trade-off among backorder, holding, and disposal costs.
