Incentive and production decisions for remanufacturing operations

We consider a manufacturer producing original products using virgin materials and remanufactured products using returns from the market where the amount of returns depend on the incentive offered by the manufacturer. We determine the optimal value of this incentive and the optimal production quantities in a stochastic demand setting with partial substitution. We analyze 3 different models in centralized and decentralized settings where the collection process of the returns is managed by a collection agency in the decentralized setting. We also analyze contracts to coordinate the decentralized systems and determine the optimal contract parameters. Finally, we present our computational study to observe the effect of different parameters on the system performance.