Remanufacturing of Multi-Component Systems with Product Substitution

Motivated by the remanufacturing systems at Daimler AG and other automobile, aerospace and heavy machinery parts dealers/manufacturers, we develop a hybrid manufacturing/remanufacturing system with controlled two-way substitution between new and remanufactured products. We develop Markov decision processes for management on product-level as well as on component level. We show that the optimal policy on product-level has the well-known switching-curve structure. Based on this structural result, we develop an efficient, close-to-optimal heuristic for the management on component-level. Our numerical experiments indicate that two-way substitution on component level significantly reduces total cost. We also extend our model to strategic cost that includes environmental aspects in the objective function. For this model, we find that substitution appears to be a phenomenon primarily beneficial for profit-oriented firms. Sustainability-oriented firms require significantly less frequent product substitution