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Applying Revenue Management to the Reverse Supply Chain
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In this article, the authors study the problem of product return in a closed-loop supply chain and develop single period and multi-period stochastic optimization models for the problem.Abstract:
textWe study the disposition decision for product returns in a closed-loop supply chain. Motivated by the asset recovery process at IBM, we consider two disposition alternatives. Returns may be either refurbished for reselling or dismantled for spare parts. Reselling a refurbished unit typically yields higher unit margins. However, demand is uncertain. A common policy in many firms is to rank disposition alternatives by unit margins. We show that a revenue management approach to the disposition decision which explicitly incorporates demand uncertainty can increase profits significantly. We discuss analogies between the disposition problem and the classical airline revenue management problem. We then develop single period and multi-period stochastic optimization models for the disposition problem. Analyzing these models, we show that the optimal allocation balances expected marginal profits across the disposition alternatives. A detailed numerical study reveals that a revenue management approach to the disposition problem significantly outperforms the current practice of focusing exclusively on high-margin options, and we identify conditions under which this improvement is the highest. We also show that the value recovered from the returned products critically depends on the coordination between forward and reverse supply chain decisions.read more
Citations
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Journal ArticleDOI
Reverse logistics and closed-loop supply chain: A comprehensive review to explore the future
TL;DR: The aim of this paper is to review recently published papers in reverse logistic and closed-loop supply chain in scientific journals and identify gaps in the literature to clarify and to suggest future research opportunities.
Customer Information Driven After Sales Service Management: Lessons from Spare Parts Logistics
TL;DR: In this paper, an execution technique for spare parts logistics that uses installed base information to provide differentiated service to a heterogeneous customer base and results in additional profits for the service provider is presented.
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Revenue management in remanufacturing: perspectives, review of current literature and research directions
TL;DR: In this article, the authors assess the current literature and distil the key factors that firms need to consider as they assimilate remanufacturing in their operations and revenue management strategy.
Book
Strategic and Tactical Aspects of Closed-Loop Supply Chains
TL;DR: Cognizant of this fact, many firms are taking a closer look at their supply chain practices and exploring ways to reduce (or at least prolong the timing of) the amount of their product that ends up in landfills.
References
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Journal ArticleDOI
Information distortion in a supply chain: the bullwhip effect
TL;DR: The authors analyzes four sources of the bullwhip effect: demand signal processing, rationing game, order batching, and price variations, and shows that the distortion tends to increase as one moves upstream.
Book
The Theory and Practice of Revenue Management
TL;DR: In this article, the authors present the economics of RM, including single-resource capacity control, network capacity control and overbooking, as well as dynamic pricing and auctioning.
Journal ArticleDOI
Global Sensitivity Analysis
TL;DR: This paper demonstrates practical approaches for determining relative parameter sensitivity with respect to a model's optimal objective function value, decision variables, and other analytic functions of a solution.
Journal ArticleDOI
The Effect of Competition on Recovery Strategies
Mark Ferguson,L. Beril Toktay +1 more
TL;DR: In this article, the authors develop models to support a manufacturer's recovery strategy in the face of a competitive threat on the remanufactured product market, and find that a firm may choose to remanufacture or preemptively collect its used products to deter entry even when the firm would not have chosen to do so under a pure monopoly environment.
Journal ArticleDOI
Managing New and Remanufactured Products
TL;DR: It is found that if remanufacturing is very profitable, the original-equipment manufacturer may forgo some of the first-period margin by lowering the price and selling additional units to increase the number of cores available for remanufactured in future periods.