Modeling stochastic hybrid production system regarding refurbishing and remanufacturing

This paper considers pricing and inventory control decisions simultaneously as a hybrid production system. The hybrid production system with two recovery options, remanufacturing and refurbishing are presented. The demand follows Poisson distribution, which depends on the sale price of each product. Returned products arrive according to a Poisson process. Each returned product can be remanufactured, refurbished, or disposed of. The time to manufacturing, refurbishing, and remanufacturing a product also follows an exponential distribution. By modeling the system as a Markov chain, the long-run expected profit function is derived as a function of the dispose –down-to level of returned products and the order-up-to level and the sale price of serviceable products 1 and 2. Considering pricing and inventory control decisions simultaneously with remanufacturing and refurbishing returned products creates a three-dimensional state space of the Markov Chain with dependence, the sale price of products. Due to the complexity of the model (mixed integer nonlinear programming), the Artificial Bee Colony (ABC) algorithm and complete search method are used. The results show that by increasing the purchase price of returned products, the amount of returned products will increase. If the refurbishing cost of the return products is high or the disposal cost is low, less inventory should be kept in the system with a high price of serviceable products. If the lost sale cost is high, the more inventory should be maintained. Moreover, by decreasing the price elasticity of demand, the customer’s demand is increased, and then more inventory should be kept in the system.