Green profit maximization through integrated pricing and production planning for a line of new and remanufactured products

Abstract To achieve a “green profit” in their businesses, original equipment manufacturers (OEMs) who produce both new and remanufactured products must optimize their pricing and production decisions. They must determine the buyback price and takeback quantity of end-of-life products (i.e., supply) as well as the selling prices and production quantities of new and remanufactured products (i.e., demand). Detailed production plans for matching the supply and demand should be optimized as well. This paper addresses the lack of a model to deal with buyback pricing, sales pricing, and production planning in an integrated manner. Considering their mutual dependence, the total profit cannot be maximized without optimizing all three simultaneously. This paper presents a model for integrated pricing and production planning for a line of new and remanufactured products in a competitive market. A mixed-integer programming model is proposed that assumes a buyback program as a takeback strategy and optimizes the buyback prices, selling prices, and detailed production plans simultaneously. A transition matrix is used to coordinate pricing and production planning reflecting the design of products. The main objective is to maximize the total profit, but the model also considers how much environmental impact can be avoided by remanufacturing. With the help of the model, OEMs can identify an optimal line of new and remanufactured products that can maximize their total profit while achieving environmental-impact saving greater than a target. By enforcing incrementally increasing environmental targets, OEMs can also explore multiple green profit opportunities that can create greater profits and increased environmental-impact savings than producing new products only. To demonstrate the proposed model, this paper presents a case study with a smartphone example.

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