Set-up and production planning in hybrid manufacturing–remanufacturing systems with large returns

Hybrid systems that use both raw materials and returned products in the production process are considered. The system contains one facility, and undergoes set-ups each time it switches between two production modes. In particular, we address systems engaged mainly in remanufacturing and having a large percentage of return. This situation is encountered in companies with mature remanufacturing channels. The targeted application area is comprised of hybrid systems that uses leasing as a business model with manufacturing serving to attenuate return uncertainty. To evaluate the system performance, we take into account manufacturing and remanufacturing costs, holding costs in serviceable and return inventories, backlog and set-up costs. Our analysis of hybrid systems with high return levels reveals features that are peculiar to such systems and that differentiate them from systems with lower return rates. We first present analytical solutions for optimal production and set-up schedule, and determine the possible cycle shapes for reliable systems. Optimal policies contain intervals of manufacturing and remanufacturing at maximal rate, and intervals of on-demand and on-return remanufacturing. Failure-prone systems are studied next, using the formalism of stochastic dynamic programming. Optimal policies give rise to the trajectories converging to the patterns similar to the analytically calculated cycles.