Impact of uncertainty in the quality of returns on the profitability of a single-period refurbishing operation

This paper investigates how the profitability of reuse activities is affected by uncertainty regarding the quality of returned products. Specifically, we examine a reverse supply chain consisting of two collection sites and a refurbishing site, which faces stochastic demand for refurbished products in a single-period setting. The quality of returns (refurbishing yield) becomes known only after the transportation of the products to the refurbishing site. We prove that the expected profit function has a unique optimal solution (procurement and production quantities) and we derive the conditions under which it is optimal to use only one of the collection sites. The analysis is supported by numerical results which provide insights regarding the effect of the uncertain yields at the two collection sites and their correlation on optimal decisions and system profitability. (c) 2006 Elsevier B.V. All rights reserved.