Diffusion control in closed-loop supply chains: successive product generations with remanufacturing potential

Abstract

We consider a durable-good producer who aims to jointly optimize its sales decisions for two successive product generations that are remanufacturable. The customer arrivals are governed by the generalized Norton-Bass diffusion process over a finite selling horizon. The remanufactured-item sales are constrained by the available end-of-use returns in each time period for each product generation. We investigate whether the producer can profit from partially satisfying the second-generation product demand to smooth out the second-generation diffusion curve and increase the total remanufactured-item sales in the long run. We show that the partial-fulfillment policy is optimal for fast-clockspeed products if (i) the profit margin ratio of the remanufactured item to the new item is large enough for the second-generation product, (ii) the profit margin ratio of the first-generation new item to the second-generation new item is high enough, (iii) the fraction of customers who are willing to buy the remanufactured item is only moderately large for each product generation, and (iv) the number of customers who are initially attracted by the first-generation product and willing to buy the remanufactured item is not too large. We also characterize the environmentally critical time period beyond which the optimal initiation of partial demand fulfillment leads to no improvement in the total remanufacturing volume for the second-generation product.