Capacity and production decisions under a remanufacturing strategy

In this paper, we investigate the effect of remanufacturing on capacity and production decisions. Inspired by the situation for a specific car company, we analyze a two-period model with manufacturing in both periods and the option in the second period to remanufacture products that are returned/collected at the end of the first period. We first and foremost focus on the case where remanufacturing is less costly and less capacity intensive than manufacturing. This setting is realistic and obviously the one where remanufacturing is most beneficial. Optimal manufacturing and remanufacturing quantities are derived and it is analyzed under what conditions (specified by costs, capacity restrictions and demand) remanufacturing leads to increased total production. We also consider the cases where remanufacturing is either more costly or more capacity intensive than manufacturing, and contrast the results the those of our main case. One particularly insightful find is that remanufacturing is seldom (very) profitable if it is more costly than manufacturing, and hence that companies should focus their attention on situations where remanufacturing lowers costs. (C) 2013 Elsevier B.V. All rights reserved.