STRATEGIC ISSUES in PRODUCT RECOVERY MANAGEMENT: THEORY and PRACTICE

1
STRATEGIC ISSUES in PRODUCT
RECOVERY MANAGEMENT THEORY
and PRACTICE

• Ali Koç
• February 7, 2015

2
Outline

• Definitions Concepts
• Theoretical Practical Implications
• Discussion on literature
• Conclusion

3
Product Recovery Management (PRM)

• Implementation of reverse manufacturing for
  economical and ecological reasons in the firm
  base
• These manuf. environments are called recoverable
  manufacturing environment.
• Recoverable manufacturing (RM) vs. traditional
  manufacturing (TM)
• Two aspects
• Logistics (Reverse Logistics)
• Manufacturing (Reverse Manufacturing)

4
Product Recovery Options (Reverse Manufacturing)
Thierry et al.(1995)

• 1. Direct reuse/resale
• 2. Repair
• 3. Refurbishing

4. Remanufacturing 5. Cannibalization 6. Recycling
7. Incineration 8. Landfilling
5
Why to shift from TM to RM

• attempt of green corporate image
• customer driven
• government legislation
• government driven
• the profitability of product recovery
• firm driven

Gungor and Gupta (1999)
6
Why to shift from TM to RM
Interaction between government, users, producers
and distributors (Gungor and Gupta 1999)
7
Companies practicing PRM

• Union Carbide
• Xerox
• Office Plan Inc.
• Miller SQA
• Deere and Company
• IBM Europe
• Digital Europe

• Delphi
• DuPont
• General Motors
• Hewlett-Packard
• Storage Tek
• TRW

Guide et al. (2000) Dowlatshahi (2000)
Fleischmann (1997)
8
Theoretical Practical Implications

• Difficulties in Recoverable Manufacturing
  Environment
• Streams of Researches in the Literature

9
Complications of PRM

• Uncertainty in the quality and composition of the
  returned product
• Uncertainty in timing and quantity of returns
• Uncertainty in the demand of the reprocessed
  products, parts and materials

10
Complications of PRM

• Balancing returns with demand
• Material recovery uncertainty
• Reverse distribution
• Uncertainty in the processing times

Thierry et al.(1995) Fleischmann (1997) Gungor
and Gupta (1999) Guide et al. (1999)
Lee et al. (2001) Guide (2000) Guide et al.
(2000) Dowlatshahi (2000)
11
Researches in the Literature

• Manufacturing Aspect
• Logistics Aspect
• Distribution
• Separate Modeling
• Hybrid Modeling
• Inventory Production Control
• Deterministic Models
• Stochastic Models
• Repair Systems
• Product Recovery Systems
• Periodic Review
• Continuous Review

12
Reverse Distribution

• Issues to consider
• Who will perform the reverse distribution
  (original actors or secondary units)
• Which functions to perform and where (where to
  perform collecting, testing, sorting and
  transporting)
• The degree of integration of the forward and
  reverse distribution channel (The main headache)

13
Reverse Distribution
Reverse distribution (Fleischman at al 1997)
14
Reverse Distribution

• Separate Modeling
• Mirchandani and Francis (1989) considers modified
  version of location models
• Kroon and Vrijens (1995) analyze a return
  logistics system for returnable containers
• Spengler at al. (1997) considers the recycle of
  industrial products in German industry, using
  mixed-integer linear programming model.

15
Caruso et al. (1993)

• Model a system consisting of collection,
  transportation, incineration, composting,
  recycling and disposal
• Use multi-objective location allocation model and
  some heuristics

16
Reverse Distribution

• Hybrid Modeling
• Del Castillo and Cochran (1996) analyze a system
  in which products are delivered in reusable
  containers.
• They consider bringing the containers back to the
  sites.

17
Production Inventory Control
Inventory control in PRM (Fleischman at al. 1997)
18
Production Inventory Control

• Additional difficulties (to TM)
• as a consequence of the return flow monotonicity
  is lost between two replenishments (challenging)
• two alternatives for meeting the demand
  (remanufactured ones or new ones) imposes another
  set of decisions to be taken in to account
• distinguishing the recoverable inventory (core
  inventory) and the serviceable inventory leads to
  a two-echelon inventory system.

19
Production Inventory Control

• Deterministic Models
• modified version of EOQ
• some portion of the returned products is disposed
• net demand equals to demand minus returns

20
Deterministic Models

• Richter (1996) determines dispose rate by
  considering the setup costs for manufacturing
  (n), and remanufacturing (m), and the time
  horizon
• Minner and Kleber (2001) find optimal production
  and remanufacturing policies for deterministic
  and dynamic demands and returns when backlogging
  is not allowed
• Kleber at al. (2002) determines the optimum
  production, remanufacturing and disposal policy
  in a deterministic env. They consider separate
  inventory for serviceable and recoverable. They
  consider m different remanufacturing operation.

21
Stochastic Models

• Repair Systems
• The question is determining the number of spares
  to guarantee a certain service level
• There are two peculiarities
• Every return triggers a demand. Hence, inventory
  is no longer increased upon return
• total number of items in the system is fixed
• There are excellent reviews, one of which is Cho
  and Parlar (1991)

22
Stochastic Models

• Product Recovery Systems
• Generally returns and demands are independent
• Two types of studies
• Firm studies
• Periodic Review
• Continuous Review
• Industry studies

23
Industry Studies

• Klausner and Hendrickson (2000) and Nakashima et
  al. (2002) considers a remanufacturing world.
• Whole products either in serviceable inventory or
  recoverable inventory.
• No cost for the recoverable inventories.
• Optimize the dispose rate of the products so that
  total cost of serviceable inventory holding,
  manufacturing and remanufacturing, backlogging
  and disposing is minimized

24
Firm Studies (Periodic Review)

• Kelle and Silver (1989) analyzes the following
• Some fraction of the demand is returned back
  after a lead-time (dependent demand and return).
• Minimize inventory-holding, backorder and fixed
  cost.
• Formulate an integer program considering the net
  demand in a period (demand minus return).
• They do not consider distinctly the serviceable
  and recoverable inventory.

25
Inderfurth (1997)

• Consider the same model as Kelle and Silver
  (1989) with different serviceable and recoverable
  inventory.
• Shows that the difficulty arises when order and
  recovery lead-times are not identical due to
  growing dimensionality of underlying Markov
  chain.
• Also studies an optimum inventory control under
  push strategy.
• Shows that if the order and recovery lead-times
  are identical, two-parameter order-up-to and
  dispose-down-to policy is optimal. But if the
  lead-times are not identical, the problem gets
  complicated

26
Inderfurth at al. (2001)

• Consider a recoverable manufacturing environment
  that has multiple remanufacturing options.
• A product upon arrival is allocated to anyone of
  remanufacturing facilities.
• There is no manufacturing and outsourcing. They
  show that under linear allocation and balancing
  assumptions, (nM, U) policy is optimal, and they
  optimize the parameters of this policy.

27
Continuous Review Policies

• Objective is to find the optimal static control
  policies to minimize the long run average cost.
• van der Laan at al. (1996) compares three
  different control strategy (sp, Qp, sd, N), (sp,
  Qp, sd), and (sp, Qp, N) under the independent
  demand and return setting using Markov chain.
• N is the capacity of the remanufacturing facility
  that forces no more than N item being
  remanufactured by assuring that the excess
  returns are disposed again.
• In some cases the second and third policy beat
  each other
• In all cases first policy beats the rest.

28
van der Laan and Salomon (1997) van der Laan et
al. (1999)

• Compare the pull and push production environments
  with control policies similar to the (sp, Qp, sd,
  N)
• Their time horizon is the life time of a product.
• Show that parameters are not robust against the
  different time periods in a product life.
• Show that pull control strategy is favorable to
  the push strategy if the inventory holding cost
  of recoverable items is greater than the holding
  cost of serviceable items (which is the case in
  reality).

29
Kiesmuller and van der Laan (2001)

• Consider dependent return and demand case
• They also considers a finite time horizon and
  finite recovery lead time.
• Shortfall is that they consider that recovery
  lead time (total of purchasing, transportation
  and remanufacturing lead-times) is equal to order
  lead-time of new items
• So they consider single inventory, only for
  serviceable.
• They try to find the optimal dispose rate in
  order to minimize the holding, backorder,
  procurement, transportation, disposal and
  remanufacturing costs.

30
Conclusion

• PRM is driven by customers, government and firms
• New research area, literature is newly forming
• Firms report the profitability so, promising
• Challenging in every aspect, both manufacturing
  and logistics
• Problems of TM are more than duplicated when we
  shift to RM

31
THANK YOU

• Q A