Optimal Pricing and Inventory Control for Green Manufacturing

Project: Research

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As the remanufacturing is becoming an important activity for our sustainable development, it is no surprise that in the last few years, we have witnessed an emergence stream of research in the field of remanufacturing. However, there are some gaps between the academic research and industrial practice. For example, in the current academic research, the new product and the remanufactured product are charged at the same price by assuming that customers do not distinguish the new product and the remanufactured product. But in practice, the remanufactured product is usually offered at a discount price because most of the customers prefer to buy the new product if there is no price difference. Therefore, companies use prices to make the new product and the remanufactured product substitutable to each other. Although there is a stream of research on coordinating pricing and inventory decisions on substitutable products, those models are not applicable to the remanufacturing setting where the selling price of the remanufactured product is always lower than the new product's price and the inventory level of the remanufactured product is subject to certain randomness constraint as the product return in each period is random. We try to fill in these gaps in this project.This project aims to offer an intelligent solution that optimizes pricing and inventory decisions for a system selling both new and remanufactured products. We assume demand for both new and remanufactured products is stochastic and substitutable in the sense that the price of one product not only affects its own demand but also the demand of the other product. We consider finite and infinite horizon models, in which a company dynamically coordinates prices and inventory levels of both new and remanufactured products to maximize its total profit. The optimal joint pricing and inventory policies will be derived to provide operational guidelines of pricing and inventory replenishment actions. In the meantime, efficient algorithms will be developed based on the optimal policies to solve these optimization problems. Finally, the value of integrating pricing and inventory decisions of both new and remanufactured products will be examined. These models are abstracted fairly general and therefore will find themselves a wide variety of industrial applications.


Project number9041676
Grant typeGRF
Effective start/end date1/09/112/11/15