The value of quality grading in remanufacturing

Mark Ferguson, V. Daniel R. Guide, Jr., Eylem Koca, Gil C. Van Souza

Research output: Contribution to journalArticle

164 Citations (Scopus)

Abstract

In this paper we consider a tactical production-planning problem for remanufacturing when returns have different quality levels. Remanufacturing cost increases as the quality level decreases, and any unused returns may be salvaged at a value that increases with their quality level. Decision variables include the amount to remanufacture each period for each return quality level and the amount of inventory to carry over for future periods for both returns (unremanufactured), and finished remanufactured products. Our model is grounded with data collected at Pitney-Bowes from their mailing systems remanufacturing operations. We derive some analytic properties for the optimal solution in the general case, and provide a simple greedy heuristic to computing the optimal solution in the case of deterministic returns and demand. Under mild assumptions, we find that the firm always remanufactures the exact demand in each period. We also study the value of a nominal quality-grading system in planning production. Based on common industry parameters, we analyze, via a numerical study, the increase in profits observed by the firm if it maintains separate inventories for each quality grade. The results show that a grading system increases profit by an average of 4% over a wide range of parameter values commonly found in the remanufacturing industry; this number increases as the returns volume increases. We also numerically explore the case where there are capacity constraints and find the average improvement of a grading system remains around 4%.

Original languageEnglish (US)
Pages (from-to)300-314
Number of pages15
JournalProduction and Operations Management
Volume18
Issue number3
DOIs
StatePublished - May 1 2009

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Profitability
Planning
Industry
Grading
Remanufacturing
Costs
Production planning
Optimal solution
Profit

All Science Journal Classification (ASJC) codes

  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering
  • Management of Technology and Innovation

Cite this

Ferguson, Mark ; Guide, Jr., V. Daniel R. ; Koca, Eylem ; Van Souza, Gil C. / The value of quality grading in remanufacturing. In: Production and Operations Management. 2009 ; Vol. 18, No. 3. pp. 300-314.
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The value of quality grading in remanufacturing. / Ferguson, Mark; Guide, Jr., V. Daniel R.; Koca, Eylem; Van Souza, Gil C.

In: Production and Operations Management, Vol. 18, No. 3, 01.05.2009, p. 300-314.

Research output: Contribution to journalArticle

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