Analysis and optimization of inventory variance and bullwhip in a manufacturing/remanufacturing system

Abstract

Quantitative analysis of closed-loop supply chains is often based on a specified cost function; dynamical performance of the system is rarely considered. This paper adopted a control theory approach to build a simple dynamic model of a hybrid manufacturing/remanufacturing system. It highlights the effect of remanufacturing (and return) lead-time and the return rate on the inventory variance and bull whip produced by the ordering policy. The results show that a larger return rate leads to less bullwhip and less inventory variance. Thus returns can be used to improve dynamic performance by absorbing some of the demand fluctuations. Longer remanufacturing (and return) lead-times have less impact on reducing inventory variance and bullwhip than shorter lead-times. It is concluded that within our specified system the inventory variance and bullwhip is always less in supply chain with returns than that without returns.