An efficient approximation to the pull policy for hybrid manufacturing and remanufacturing systems with setup costs

We consider a continuous-review inventory control problem for a hybrid manufacturing and remanufacturing system with product recovery and setup costs. A pull policy has been proposed in the literature, however, finding its optimal parameters requires an exhaustive search and a single cost function evaluation is itself complex. We propose a tractable approach to finding these parameters using an interim policy called double (r, Q) with parameters (rm, Qm, rr, Qr). When the inventory position of the serviceable item reaches rr, a remanufacturing lot size Qr is setup if recoverable inventory is sufficient. Otherwise, we allow the inventory position to decrease further. As it drops to rm, a manufacturing lot size Qm is placed. Unlike the pull policy, this interim policy suspends the remanufacturing option when the inventory position is less than rr. This facilitates an efficient approximation of the recoverable inventory which decouples the double (r, Q) problem into two standard (r, Q) problems. It can then be efficiently solved using a modification of existing (r, Q) algorithms for two instances. Numerical studies show that our approach performs well relative to the optimal pull policy with parameters estimated from an extensive Simulation-Optimization method and other heuristics found in the literature. The approach is also extended to correlated demand and return arrivals.