Quantity decisions in a supply chain with early returns remanufacturing

Abstract

Consider a supply chain where the retailer faces a stochastic demand and orders from the supplier, while the supplier manufactures new products and also remanufactures early returns to meet the order. The order and manufacturing quantity decisions are studied under three decentralised cases: (1) the Stackelberg case, where the manufacturing quantity is determined by the supplier after realising the order quantity from the retailer; (2) the Nash case, where the manufacturing and order quantities are determined simultaneously; (3) the inaccessible return information case, where the retailer does not have the distribution information of upstream returns. We find that in the Stakelberg case the order and manufacturing quantities are larger than in the inaccessible return information case, and the profits for the supplier and retailer are also higher. In contrast, the quantities and profits in the Nash case are the lowest of the three cases when the returns are negatively correlated to the demand. The centralised system is also explored by solving a two-step dynamic program. Computational results are reported to show the effects of system parameters.

Keywords:

• re-manufacturing
• game theory
• reverse logistics

Acknowledgements

The authors wish to express their sincerest thanks to the editors and anonymous referees for their constructive comments and suggestions on the earlier versions of the paper. We gratefully acknowledge the support of (i) National Natural Science Foundation of China (NSFC), Research Fund Nos. 71002077, 70772052, and 2009 Humanities and Social Science Youth Foundation of Nankai University NKQ09027, for X. Li; (ii) NSFC Research Fund No. 70971069, and the Fok Ying-Tong Education Foundation of China No. 121078, for Y.J. Li; and (iii) Research Grants Council of Hong Kong, General Research Fund No. 410509, and NSFC Key Program Grant No. 70932005, for X.Q. Cai.