Leadtime effects and policy improvement for stochastic inventory control with remanufacturing

When returns of goods and remanufacturing options have to be taken into consideration in inventory control situations, two additional sources of complexity appear in the traditional approaches of optimizing stochastic inventory control. Firstly, due to uncertainty of returns, an additional stochastic impact has to be regarded. Secondly, with remanufacturing a second mode of supply of serviceable goods is given, so that coordination with the regular mode of procurement becomes necessary. It can be shown that under these conditions we face extremely complicated optimal control rules if the leadtimes for remanufacturing and regular procurement differ. This holds for both the structure of the control policy and the inventory information necessary for optimal stock adjustment. In this context, the meaning of the inventory position, which is well-defined in traditional inventory control, is no longer evident. In practice, in these situations usually simple (suboptimal) decision rules are applied that only use a few control parameters and additionally do not take into consideration the complexity of defining the inventory position appropriately. For such a simple (4-parameter) control rule it is shown that by determining the inventory position in a proper way the performance of the policy can be improved considerably. This effect is equivalent to using the remanufacturing leadtime as a decision variable which has to be fixed in an optimal way.