Re-Ordering Policies For Inventory Systems With Recyclable Items And Stochastic Demand – Outsourcing Vs. In-House Recycling

Abstract

Investing in recoverable items is an increasing trend in a variety of manufacturing industries. Such industries seek to balance their supply chain costs while reducing the amount of solid (non-biodegradable) waste. Our work develops mathematical models of inventory systems that rely on newly manufactured and recoverable items to satisfy the market demand. Specifically, we consider continuous (r, Q) re-ordering policies for single item inventory systems with stochastic demand and recycling. We solve for the re-ordering policy and safety stock for two models. The first model assumes that the recovery of items is outsourced to a supplier, where returns (collected used items) arrive in random quantities with every order. The second model assumes that product recovery is performed in-house at the manufacturer’s facilities. The proposed mathematical frameworks consider an infinite time horizon where demand and the amount recovered are stochastic. The objective of this work is to focus on developing environmentally responsible inventory policies/models that could help in greening supply chains. A numerical study is presented to compare the proposed models and quantify the cost trade-off between recovering (recycling) items in-house and outsourcing them.