Robust optimal dynamic production/pricing policies in a closed-loop system

Hybrid manufacturing/remanufacturing systems play a key role in implementing closed-loop production systems which have been considered due to increasingly environmental concerns and latent profit of used products. Manufacturing and remanufacturing rates, selling price of new products, and acquisition price of used products are the most critical variables to optimize in such hybrid systems. In this paper, we develop a dynamic production/pricing problem, in which decisions should be made in each period confronting with uncertain demand and return. The manufacturer is able to control the demand and return by adjusting selling price and acquisition price respectively, also she can stock inventories of used and new products to deal with uncertainties. Modeling a nominal profit maximization problem, we go through robust optimization approach to reformulate it for the uncertain case. Final robust optimization model is obtained as a quadratic programming model over discrete periods which can be solved by optimization packages of QP. A numerical example is defined and sensitivity analysis is performed on both basic parameters and parameters associated with uncertainty to create managerial views. (C) 2013 Elsevier Inc. All rights reserved.