Pricing Remanufactured Products Under Stochastic Demand and Backlogging Available to Purchase

Independent and small scale product recovery facilities (PRFs) often struggle to achieve profits under inconsistent inflows of discarded products and varying demand patterns for remanufactured products. Inconsistent inflows coupled with the varying demand cause undue fluctuations in inventory levels and holding costs. PRFs can leverage the inventory levels by posting appropriate prices for remanufactured products and procuring the right quantity of discarded products. This work determines the optimal prices of remanufactured products and the optimal procurement quantity of discarded products when (a) PRFs passively accept and proactively acquire discarded products, (b) demand for remanufactured products is stochastic, and (c) backlogging of demand is permitted. The stochastic demand is modeled to consist of an additive random variable. Optimal solutions are established when the additive random variable follows a generic probability distribution.