Lot sizing for a recoverable product with inspection and sorting

This paper studies an inventory system where demand is satisfied by recovered and new purchased items. Used units of a product, returned by (or collected from) customers, are kept in recoverable inventory until the start of a combined process of inspection and recovery. Recovered (remanufactured) items are assumed to be as-good-as new. However, some recovered items do not qualify to be classified as ‘‘remanufactured” and are perceived by customers to be of secondary quality. These refurbished items are sold to a secondary market at a reduced price. A simple formula that determines the optimal inventory level of recoverable (used) items is developed to be able to start the inspection and recovery processes and the economic order quantity for procurement. According to the relationships among the parameters, this paper proposes and analyzes models that describe the system of interest, which are considered extensions of the work of Koh, Hwang and Sohn [Computers and Industrial Engineering 43(1–2), 59–73, 2002].