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Optimal inventory and pricing policies for remanufacturable leased products

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  • Aras, Necati
  • Güllü, Refik
  • Yürülmez, Sevil

Abstract

In this paper we consider a company which leases new products and also sells remanufactured versions of the new product that become available at the end of their lease periods. When the amount of end-of-lease items in stock is not sufficient to meet the demand for remanufactured products, the firm may purchase additional cores from a third-party supplier. We develop a dynamic programming formulation for determining the optimal price of remanufactured products, and optimal payment structure for the leased products. Our objective is to maximize the discounted system-wide profit over a finite horizon. The profit function consists of revenues that are obtained from remanufactured product sales and leasing, remanufacturing and manufacturing costs, inventory holding and shortage costs. We consider a consumer choice based demand model for mapping a potential customer into one of the product segments (a remanufactured product customer or a customer for a leased product with a particular lease period) for a given price/lease payment vector. We explore several properties of the discounted profit function and provide insight on the behavior of pricing and inventory policies. We also investigate the effect of key product characteristics such as deterioration in age, cost of shortage in remanufacturable product inventory, and key market characteristics such as relative willingness-to-pay for buying a remanufactured product and relative willingness-to-pay for leasing a new product on optimal pricing policies through a computational study.

Suggested Citation

  • Aras, Necati & Güllü, Refik & Yürülmez, Sevil, 2011. "Optimal inventory and pricing policies for remanufacturable leased products," International Journal of Production Economics, Elsevier, vol. 133(1), pages 262-271, September.
    • Handle: RePEc:eee:proeco:v:133:y:2011:i:1:p:262-271
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    References listed on IDEAS

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    1. Geraldo Ferrer & Jayashankar M. Swaminathan, 2006. "Managing New and Remanufactured Products," Management Science, INFORMS, vol. 52(1), pages 15-26, January.
    2. Preyas Desai & Devavrat Purohit, 1998. "Leasing and Selling: Optimal Marketing Strategies for a Durable Goods Firm," Management Science, INFORMS, vol. 44(11-Part-2), pages 19-34, November.
    3. Laurens G. Debo & L. Beril Toktay & Luk N. Van Wassenhove, 2005. "Market Segmentation and Product Technology Selection for Remanufacturable Products," Management Science, INFORMS, vol. 51(8), pages 1193-1205, August.
    4. Preyas S. Desai & Devavrat Purohit, 1999. "Competition in Durable Goods Markets: The Strategic Consequences of Leasing and Selling," Marketing Science, INFORMS, vol. 18(1), pages 42-58.
    5. Mitra, Subrata, 2007. "Revenue management for remanufactured products," Omega, Elsevier, vol. 35(5), pages 553-562, October.
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    Citations

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    Cited by:

    1. Yoo, Seung Ho, 2014. "Product quality and return policy in a supply chain under risk aversion of a supplier," International Journal of Production Economics, Elsevier, vol. 154(C), pages 146-155.
    2. Si, Guojin & Xia, Tangbin & Zhu, Ying & Du, Shichang & Xi, Lifeng, 2019. "Triple-level opportunistic maintenance policy for leasehold service network of multi-location production lines," Reliability Engineering and System Safety, Elsevier, vol. 190(C), pages 1-1.
    3. Ece G. Gülserliler & Joseph D. Blackburn & Luk N. Van Wassenhove, 2022. "Consumer acceptance of circular business models and potential effects on economic performance: The case of washing machines," Journal of Industrial Ecology, Yale University, vol. 26(2), pages 509-521, April.
    4. Yoo, Seung Ho & Kim, Byung Cho, 2016. "Joint pricing of new and refurbished items: A comparison of closed-loop supply chain models," International Journal of Production Economics, Elsevier, vol. 182(C), pages 132-143.
    5. Jackson, Canek & Pascual, Rodrigo, 2021. "Joint pricing and maintenance strategies in availability-based product-service systems under different overhaul conditions," Reliability Engineering and System Safety, Elsevier, vol. 216(C).
    6. Liu, Jian & Mantin, Benny & Song, Xuefeng, 2022. "Rent, sell, and remanufacture: The manufacturer's choice when remanufacturing can be outsourced," European Journal of Operational Research, Elsevier, vol. 303(1), pages 184-200.
    7. Ben Mabrouk, A. & Chelbi, A. & Radhoui, M., 2016. "Optimal imperfect maintenance strategy for leased equipment," International Journal of Production Economics, Elsevier, vol. 178(C), pages 57-64.
    8. Tilson, Vera & Zheng, Xiaobo, 2014. "Monopoly production and pricing of finitely durable goods with strategic consumers׳ fluctuating willingness to pay," International Journal of Production Economics, Elsevier, vol. 154(C), pages 217-232.

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    Keywords

    Leasing Remanufacturing Pricing;

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