Inventory Management in a Consumer Electronics Closed-Loop Supply Chain

The goal of this paper is to describe, model, and optimize inventory in a reverse logistics system that supports the warranty returns and replacements for a consumer electronic device. The context and motivation for this work stem from a collaboration with an industrial partner, a Fortune 100 company that sells consumer electronics.The reverse-logistics system is a closed-loop supply chain: failed devices are returned for repair and refurbishing; this inventory is then used to serve warranty claims or sold through a side-sales channel. Managing inventory in this system is challenging due to the short life-cycle of these devices and the rapidly declining value for the inventory.The authors examine an inventory model that captures these dynamics. The authors characterize the structure of the optimal policy for this problem for stochastic demand and introduce an algorithm to calculate optimal sell-down levels.The authors also provide a closed-form policy for the deterministic version of the problem, and they use this policy as a certainty-equivalent approximation to the stochastic optimal policy.Finally, using numerical experiments, the authors analyze the sensitivity of this system to changes in various parameters, and they also evaluate the performance of the certainty-equivalent approximation using data from their industrial partner