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An NPV and AC Analysis of a Stochastic Inventory System with Joint Manufacturing and Remanufacturing

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Author Info
Laan, E.A. van der (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)

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Abstract

While the net present value (NPV) approach is widely accepted as the right framework for studying production and inventory control systems, average cost (AC) models are more widely used. For the well known EOQ model it can be veri_ed that (under certain conditions) the AC approach gives near optimal results. This paper investigates whether the same holds for two-source systems with joint manufacturing and remanufacturing. It appears that the performance of the AC approach stands or falls with the right choice of the holding cost parameters. Through the analysis of a deterministic model a theoretical basis is provided for choosing the parameters. Then, given this set of holding cost parameters, the performance of the AC approach is tested in a stochastic model.

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Paper provided by Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam. in its series Research Paper with number ERS-2000-38-LIS Revision_Date: 2009-07-29.

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Date of creation: 06 Oct 2000
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Handle: RePEc:dgr:eureri:200040

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Keywords: Net present value; average costs; remanufacturing; inventory control; holding costs.;

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  1. Fleischmann, Moritz & Bloemhof-Ruwaard, Jacqueline M. & Dekker, Rommert & van der Laan, Erwin & van Nunen, Jo A. E. E. & Van Wassenhove, Luk N., 1997. "Quantitative models for reverse logistics: A review," European Journal of Operational Research, Elsevier, vol. 103(1), pages 1-17, November. [Downloadable!] (restricted)
  2. Grubbstrom, Robert W. & Thorstenson, Anders, 1986. "Evaluation of capital costs in a multi-level inventory system by means of the annuity stream principle," European Journal of Operational Research, Elsevier, vol. 24(1), pages 136-145, January. [Downloadable!] (restricted)
  3. Hofmann, Christian, 1998. "Investments in modern production technology and the cash flow-oriented EPQ-model," International Journal of Production Economics, Elsevier, vol. 54(2), pages 193-206, January. [Downloadable!] (restricted)
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  1. Corbacıoğlu, U. & Laan, E.A. van der, 2005. "Setting the holding cost rates in a multi-product system with remanufacturing," Research Paper ERS-2005-072-LIS Revision, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]
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