Inventory Management in Closed-Loop Supply Chain

1. Inventory Management in Closed-Loop Supply Chain 2004. 8. 21 임 치 훈

2. Business Aspects of Closed-Loop Supply Chains • Rommert Dekker et al., Inventory Control in Reverse Logistics • Karl Inderfurth, Optimal policies in hybrid manufacturing/remanufacturing systems with product substitution

3. The Carnegie Bosch Institute International Conference on Closed-Loop Supply Chains Business Aspects of Closed-Loop Supply Chains May 31 – June 2, 2001 Pittsburgh, Pennsylvania Inventory Control in Reverse Logistics Rommer Dekker and Erwin van der Laan, Erasmus University Rotterdam, The Netherlands

4. A continuous time inventory model for a product recovery system with multiple options Introduction Classification of Inventory Control Problems Inventory Control for Direct Reuse Inventory Control for Value-Added Recovery The Use of Accounting Information Summary and Outlook

5. A schematic overview of reverse logistics situations

6. Classification of Inventory Control Problems • Return reason • Rework • Commercial return, outdated product • Product recall • Warranty return • Repair • End-of-use return • End-of-life return • Recovery option • Selling or donation • Store and reuse (direct reuse) • Value-added recovery • Recycle • Disposal

7. Inventory Control for Direct Reuse • Single-period Inventory Decision Problem • Considers only order quantity • Fashion product, final order problem • Vlachos and Dekker (2000) • Known percentage of returns arrives in time to be resold • Most return recovery options can be reduced to the standard newsboy optimality equation • Multi-period Infinite Horizon Inventory Decision Problem • Considers both reorder point and order quantity • Spare parts control of a refinery • Fleischmann et al. (1997) • Independent Poisson processes for demands and returns • (s,S) policies remain optimal • Multi-period Finite Horizon Inventory Decision Problem • Considers both reorder point and order quantity • Demand and returns are specified per period • Richter and Sombrutzki (2000) • Reverse economic lot sizing model with an unlimited return quantity • Zero-inventory regeneration property

8. Inventory Control for Direct Reuse • Netting Approach • Considers returns as negative demands • The net demands are treated with traditional methods for single source inventory control • Van der Laan et al. (1996) • Satisfactory method when return rates are low • The net demand is much more variable than the total demand • Direct Reuse in Network Inventories • Considers containers and reusable packaging • Determines how many containers are needed at each depot for a given time • Shen and Khoong (1995) • Decision Support System for this problem • Disposal • When return rates exceed demand rates

9. Inventory Control for Value-Added Recovery • Late 1960’sinventory control for repairable inventory • Physical closed-loop system • After repair the items stay with or return to the original owner/user • A demand and a production return always coincide • Product Remanufacturing • Functional closed-loop system • Variability and uncertainty in the timing and quantity of product returns → Difficult to balance supply with demand • Variability and uncertainty in the quality of returned products → Operations involved with remanufacturing are usually of a very stochastic nature • Toktay et al. (1999) – Kodak single-use camera • Krikke et al. (1999) – copiers at Océ

10. Inventory Control for Value-Added Recovery

11. Inventory Control for Value-Added Recovery • The most common assumptions • Inventory systems are single item, single component systems • Product returns are independent of product demands • The demand and return processes are Poisson processes • Yields are certain • Processes are stationary • Leadtimes are constant and independent of the order size

12. Inventory Control for Value-Added Recovery • Optimal Policies • Inderfurth (1997) • (L,M,U) policy • Remanufacturing leadtime = manufacturing leadtime, no fixed setup cost • Minner and Kleber (1999) • Deterministic setting with dynamic demand and return patterns • Inderfurth et al. (2001) • n different remanufacturing options, each sold on a separate market • Heuristic Policies • Muckstadt and Isaac (1981) • Manufacturing – continuous review (s,Q) policy • Product returns are remanufactured upon arrival with stochastic service times and limited capacity • Van der Laan et al. (1997) • Continuous review push and pull policies • The push policy concentrates stocks in serviceable inventory • Inderfurth and Van der Laan (1998) • Treats the remanufacturing leadtime as a decision variable

13. Inventory Control for Value-Added Recovery • Dependency relation between demands and returns • Enables forecasts for timing and quantity of product returns • Kiesmüller and Van der Laan (2001) • If good forecasts are incorporated in the inventory policy, they considerably improve system performance • Kelle and Silver (1986) • Tracking and tracing of individual products leads to superior return forecasts

14. Optimal policies in hybrid manufacturing/remanufacturing systems with product substitution International journal of production economics 90 (2004) 325-343 Karl Inderfurth* *Faculty of Economics and Management, Otto-von-Guericke-University Magdeburg, Magdeburg, Germany

15. A continuous time inventory model for a product recovery system with multiple options Decision problem General model formulation Case A. Short manufacturing leadtime Case B. Short remanufacturing leadtime Managerial insights Further research

16. Decision problem • If remanufactured products are significantly different from new ones, they are sold in different markets to different customers at different prices • If a company is willing to offer its customers of remanufactured items a higher-valued original one in an out-of-stock situation. (downward substitution)

17. General model formulation • Optimally coordinated manufacturing/remanufacturing policy under product substitution • Objective : maximize the expected profit • Single-stage, single-period • Independent stochastic demands for both product types • Deterministic leadtimes for manufacturing and remanufacturing • Stochastic returns of used products • Returned items which are not remanufactured will be disposed of

18. General model formulation • Notation • i = M for manufacturing(MP) • i = R for remanufacturing(RP)

19. General model formulation • Revenues from selling and salvaging MPs/expected revenues • Substitution quantity/expected amount of substitution • Expected total profit • Bound

20. Case A. Short manufacturing leadtime • At the time of the manufacturing decision the number of returns R which can be used for remanufacturing is known with certainty • Optimization problem

21. optimal ‘order-up-to-levels’ Case A. Short manufacturing leadtime • Theorem 1 • TP(yM, yR) is jointly concave in yM and yR → Optimal reaction function • Theorem 2, 3 • SM(yR) is monotonously decreasing with • : Newsboy solution of the separate manufacturing problem (yR→∞) • : Solution in case of zero RP inventory (yR = 0) • SR(yM) is monotonously decreasing with • : Newsboy solution of the separate remanufacturing problem (yM = 0) • : Solution in case of unlimited MP inventory (yM→∞)

22. Case A. Short manufacturing leadtime • Optimal policy structure in Case A

23. Case B. Short remanufacturing leadtime • At the time of the manufacturing decision the return uncertainty may not yet have been completely revealed • Optimization problem for remanufacturing

24. Case B. Short remanufacturing leadtime • Theorem 4 • TPR(yR, yM, xR ,R) is jointly concave in yR → Optimal reaction function from • Theorem 5 • UR(yM) is identical to function SR(yM) in Case A • So it is monotonously decreasing with • Optimal remanufacturing decision • Optimal profit from remanufacturing

25. Case B. Short remanufacturing leadtime • Optimization problem for manufacturing • Theorem 6 • TPM(yM, xM, xR) is concave in yM →Optimal reaction function from • ‘Manufacture-up-to policy’

26. Case B. Short remanufacturing leadtime • Optimal policy structure in Case B

27. 정리 • Closed-Loop Supply Chain의 Production Planning and Control • 현재까지는 Inventory control 분야에 많이 집중되어 있음 • Optimal policy에 관한 연구들은 실제 사례에 사용하기 어려움 • Heuristic method 사용한 inventory control에 대한 논문 review 계획