Sales planning in closed-loop supply chains: recycling and remanufacturing options for early-generation returns

Abstract

We consider a durable-good producer who optimizes its sales strategy for two successive generations of the same product and is able to remanufacture or recycle the first-generation product returns. The customer arrivals follow a multi-generation diffusion process that takes into account the word-of-mouth feedback spread within each customer population of successive product generations as well as the substitution effect among these product generations. We investigate theeconomic viability of deliberately slowing down the second-generation product diffusion to improve the first-generation remanufactured-item sales and the use of recycled content in the second-generation production in the long run. We provethat such a forward-looking approach is optimal if (i) the diffusion process is fast enough in the absence of any manipulation, (ii) the number of first-generation end-of-life returns and the recyclable-material amount from each such return are high enough, and (iii) the potential customer base of the first-generation product is sufficiently large. We also show that the same forward-looking approach is less likely to be optimal when the used items can only be acquired from the previous buyers of the first-generation product who return their used items to trade up to the second-generation product. We conjecture that our sales strategy has the potential not only to improve the profits in the long run but also to contribute to sustainable production and consumption by helping recover more used items via remanufacturing and recycling options.