Controlling inventories with stochastic item returns: A basic model

Environmental legislation and customer expectations increasingly force manufacturers to take back their products after use. Returned products may enter the production process again as input resources. Material management has to be modified accordingly. One of the areas concerned is inventory management. The present paper provides a step towards a systematic analysis of inventory control in the context of reuse. A basic inventory model is presented comprising Poisson demand and returns. For this model, an optimal control policy is derived and optimal control parameters are computed. Moreover, a numerical analysis is provided of the impact of the return-flow on the inventory system. Comparison with traditional (s,Q)-inventory models is central throughout the analysis.