The Impact of Return Disposal on Order Variance in a Hybrid Manufacturing and Remanufacturing System

This article studies the impact of return disposal on production order variance in a hybrid production system with both manufacturing and remanufacturing options. Using discrete event simulation, Push- and Pull-Disposal inventory control strategies are compared in terms of production order variance, which causes the bullwhip effect. A variety of scenarios for each system, based on different disposal rates, manufacturing/remanufacturing lead time ratios, and various cost parameters, are considered. According to our findings in most of the scenarios increasing the disposal rate leads to lower production order variance values. Utilizing Push- or Pull-Disposal inventory control policies does not affect production order variance significantly. In cases where remanufacturing is markedly profitable and manufacturing and remanufacturing setup costs are close to each other, low disposal levels may result in higher order variance values, which cause additional costs due to missed production schedules, poorly conceived capacity plans, excessive inventory investment, and inefficient transportation. Managers who plan to remanufacture with disposal option should study the hybrid production system thoroughly to reveal hidden costs and take all the costs into account properly by their feasibility calculations.

Managerial relevance statement: Remanufacturing is a product recovery process where the quality of recovered products are as good as manufactured new products. A manager considering remanufacturing along with manufacturing in the plant, should carefully examine the hybrid manufacturing and remanufacturing production system beforehand to reveal all hidden costs. These costs may be incurred by additional uncertainties specific to such hybrid production systems and cause production and inventory costs of such systems to be higher than that of traditional manufacturing systems. In this regard, remanufacturing may increase order variance in a plant and cause difficulty in capacity planning and thus induce additional costs. Therefore, managers should decide whether to remanufacture all returned products that are qualified for remanufacturing. Managers should be aware that remanufacturing all the returns might not be the best choice every time. Adopting other return handling options like disposal could be more cost-effective. To improve production stabilization, managers may determine an appropriate disposal level, which reduces order variance in the plant, by considering their specific productionparameter settings.