Determination of the optimal production policy and product recovery policy: The impacts of sales margin of recovered product

Abstract

In this article, we consider the problem of jointly determining both the manufacturer's selling quantity and the recovery rate of used products in a single-manufacturer–single-retailer supply chain. The types of recovery of used products might be either product recovery or component recovery. Also, since two types of finished products, i.e. either original product or recovered product, might have different sales margins in a market, the optimal recovery policy should be established according to the operational setting for resource recovery. This problem is formulated as a profit maximisation problem. We propose the solution procedure for deriving the optimal solution and numerical examples are provided to illustrate our approach. From the numerical results, we observed that the economical recovery policy can be classified into three modes, i.e. no-recovery, partial-recovery and full-recovery. And, it is analysed that how the optimal recovery policy might be characterised according to the key operational parameters such as the production capacity and recovery rate.