THE EFFECT OF RANDOM YIELD OF PRODUCT RETURNS TO THE PRICING DECISIONS FOR SHORT LIFE-CYCLE PRODUCTS IN A CLOSED-LOOP SUPPLY CHAIN

Remanufacturing is one of the product recovery processes which transforms used-product into “like-new” condition. It could extend the product’s useful life and could help reducing huge amount of short life-cycle products’ wastes. Pricing decision is an important aspect of successful remanufacturing which would secure the firm’s profitability. However, the uncertainty in materials recovered from product returns is one among the complicating characteristics. Unlike remanufacturing for consumer returns and business-to-business (B2B) returns, remanufacturing for end-of-use products needs to cope with high uncertainties in quality and quantity of the acquired product returns. Therefore, after inspection, only a fraction of returns can be recovered through remanufacturing operation. Random yield of product returns also influences the decisions in acquisition, wholesale, and retail prices. We propose a pricing model that accommodate the effect of random yield of product returns to the pricing decisions for short life-cycle products in a closed-loop supply chain, under random demand. The system consists of a retailer, a manufacturer, and a collector of used-product under multi-period setting. Demand functions are random, time-dependent, and price-sensitive; both for new and remanufactured products. Yield of product return is random with known probability density function and cumulative distribution function. Sequential decision approach is undertaken to find the optimum pricing decision that maximize the supply chain profit, with pricing game that puts manufacturer as a Stackelberg leader. The results indicated that remanufacturing cost, manufacturer’s shortage penalty, and yield factor randomness influence the pricing decisions