Setting the Holding Cost Rates in a Multi-Product System with Remanufacturing

23 Pages Posted: 21 Dec 2005

See all articles by Umut Corbacioglu

Umut Corbacioglu

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)

E. van der Laan

Erasmus University Rotterdam (EUR) - Department of Technology and Operations Management; Erasmus Research Institute of Management (ERIM)

Date Written: November 18, 2005

Abstract

The Net Present Value (NPV) approach is considered to be the right approach to study inventory and production systems. But, approximate average cost (AC) approach is widely used in both practice and theory. However, the opportunity cost interpretation of AC framework is not that straightforward in systems with joint manufacturing and remanufacturing. In such systems the end-product stock contains both manufactured and remanufactured products. Remanufacturing can be used to convert the returns stock into different products. Due to this complex structure, the valuation of inventories at both stocking points is ambiguous. In this paper we analyze a two-product system with manufacturing and remanufacturing in a deterministic setting. By considering two different models under an NPV approach and an AC approach, we determine holding cost rates such that the two approaches are approximately equivalent. Then we demonstrate the negative effect of traditional valuation methodology on the remanufacturing operation dynamics by using these theoretical results.

Keywords: Holding Cost, Inventory Control, Net Present Value, Remanufacturing, Reverse Logistics

Suggested Citation

Corbacioglu, Umut and van der Laan, Erwin A., Setting the Holding Cost Rates in a Multi-Product System with Remanufacturing (November 18, 2005). ERIM Report Series Reference No. ERS-2005-072-LIS, Available at SSRN: https://ssrn.com/abstract=864972

Umut Corbacioglu (Contact Author)

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

Erwin A. Van der Laan

Erasmus University Rotterdam (EUR) - Department of Technology and Operations Management ( email )

RSM Erasmus University
PO Box 1738
3000 DR Rotterdam
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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