Lot sizing and pricing problem in a recovery system with returns and one-way substitution option: Novel cost benefit evaluation based approaches

Abstract In this study, we investigate the joint pricing and lot-sizing problem in a hybrid manufacturing and remanufacturing system with one-way substitution option. The objective is to find the optimal prices and quantities over each period that maximizes the firm revenue, minimizes holding and production costs, and meets the customers’ demands. The considered system is a single production line where both operations of manufacturing and remanufacturing are hold. The items issued from the two processes are not of the same quality and price. The remanufacturing option is based on the collected used products called returns and generates products with less quality. In this paper two demand yields are considered, for new and remanufactured items. In the shortage case of remanufactured items, a one-way substitution option is assumed, so that the demand of these remanufactured items is satisfied by new ones. The objective is to find the optimal prices and quantities in each period that maximizes the firm revenue. The paper proposes a mixed integer-programming model to find optimal production and pricing strategy over a planning horizon, a novel adaptation of cost benefit evaluation heuristic and a memetic algorithm to find near optimal solutions. An extensive simulation analysis is performed for different values to confirm the performance of the proposed approaches.