Coordination between forward and reverse production streams for maximum profitability

Although remanufacturing can unlock the added value in used products, the inherent uncertainty in returns can cause a potential imbalance between supply and demand. This study involves the development of an optimisation model, which coordinates the forward and reverse production streams to strike an optimal balance between the uncertain acquisition rate and market demand. We formulate three strategies: (I) a reactive strategy to determine the optimal replenishment for limited output of the remanufactured product, (II) a proactive strategy to implement an optimal remanufacture-up-to policy, and (III) a global optimal strategy to maximise profitability in a closed-loop supply chain. Using different examples, the practical significance and adaptability of each strategy were validated. More importantly, we offer useful managerial implications by revealing that, despite their low processing cost, remanufactured products do not necessarily imply higher cost efficiency. Indeed, it may be more profitable to manufacture new products at a higher cost than remanufacturing.