Document Type

Article

Publication Version

Accepted Manuscript

Publication Date

2006

Journal or Book Title

Production and Operations Management

Volume

15

Issue

3

First Page

369

Last Page

383

DOI

10.1111/j.1937-5956.2006.tb00251.x

Abstract

Many retail product returns can be refurbished and resold, typically at a reduced price. The price set for the refurbished products affects the demands for both new and refurbished products, while the refurbishment and resale activities incur costs. To maximize profit, a manufacturer in a competitive market must carefully choose the proportion of returned products to refurbish and their sale price. We model the sale, return, refurbishment, and resale processes in an open queueing network and formulate a mathematical program to find the optimal price and proportion to refurbish. Examination of the optimality conditions reveals the different situations in which it is optimal to refurbish none, some, or all of the returned products. Refurbishing operations may increase profit or may be required to relieve a manufacturing capacity bottleneck. A numerical study identifies characteristics of the new product market and refurbished products that encourage refurbishing and some situations in which small changes in the refurbishing cost and quality provoke large changes in the optimal policy.

Comments

This is a manuscript of an article from Production and Operations Management 15 (2006): 369, doi: 10.1111/j.1937-5956.2006.tb00251.x. Posted with permission.

Copyright Owner

Production and Operations Management Society

Language

en

File Format

application/pdf

Published Version

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