Simple optimal replenishment and disposal policies for a product recovery system with leadtimes

The paper addresses a problem of product recovery management where a single product is stocked in order to fulfill a stochastic demand of customers who may return products after usage, thus generating also stochastic product returns. The material flow can be controlled by procuring new products on the one hand, and by remanufacturing or disposal of returned items on the other. A situation is considered where all costs are proportional and where remanufacturing as well as procurement needs a fixed deterministic leadtime which can be different for both activities. For periodic review control it is shown how the optimal decision rules for procurement, remanufacturing and disposal can be evaluated by exploiting the functional equations of a dynamic programming formulation. The serious impact of leadtimes on the complexity of the control rule is elaborated, and it is demonstrated for which leadtime situations simple optimal policies can be derived.