Optimal Control of Remanufacturing
Inventory Systems with Multiple Types of Returns
Xiuli Chao
Department of Industrial and Operations Engineering
The University of Michigan
Ann Arbor, MI 48109
Abstract
We study a single-product periodic-review inventory system with multiple types
of returns. The serviceable products for fulfilling stochastic customer demand can be
either manufactured/ordered, or remanufactured from the returned products, and the
objective is to minimize the expected total discounted cost over the planning horizon. We
show that, under some circumstances but not all, the optimal policy has a simple form
and can be completely characterized by a sequence of constant control parameters.
However, in other scenarios, the optimal policy is quite complicated and its control
parameters are state-dependent. We develop simple heuristic policies for managing the
system, and numerical studies show that the heuristics are effective. This is a joint work
with Sean Zhou and Zhijie Tao.
Brief Bio: Xiuli Chao is a professor of Industrial and Operations Engineering and
the University of Michigan at Ann Arbor. His research interests include queueing,
scheduling, financial engineering, inventory control, and supply chain management.
Chao is the co-developer of Lekin Scheduling System, and is the co-author of two books,
"Operations Scheduling with Applications in Manufacturing and Services"
(Irwin/McGraw-Hill, 1998), and "Queueing Networks: Customers, Signals, and Product
Form Solutions" (John Wiley & Sons, 1999). Chao received the 1998 Erlang Prize from
the Applied Probability Society of INFORMS, and the 2005 David F. Baker
Distinguished Research Award from Institute of Industrial Engineers (IIE). He received
his doctoral degree from Columbia University in 1989.