Optimal Lot-Sizing Decisions for a Remanufacturing Production System under Spare Parts Supply Uncertainty

Abstract

Remanufacturing is a way for product recovery initiative and maintaining sufficient production flow to satisfy customer demand through circular economy. Recently, manufacturers have been progressively incorporating remanufacturing processes, making their supply chain vulnerable to disruptions. Among the disruptions that usually occur is the shortage in spare parts supply, which causes unexpected delay in production and possible loss of sales. In the face of potential disruption, it is essential for remanufacturing facilities to manage their supply chains in an optimum manner as to decrease the adverse impact of disruptions to their business. In this study, a two-stage production-inventory system is analysed by developing a cost-minimisation model focusing on the recovery schedule after a disruption occurrence in sourcing spare parts for a remanufacturer’s production cycle. The developed model was solved using the branch and bound algorithm. Through numerical experiments, the results indicate that the optimal recovery schedule and the number of recovery cycles are significantly dependant on disruption time, lost sales and backorder costs. Moreover, a sensitivity analysis shows that the lost sales option seems to be more effective than the backorder option in optimising the system’s overall cost. The proposed model could assist managers in deciding the optimal production strategy while providing interesting managerial insights into vital spare parts recovery issues when disruption strikes.