(An) analysis of the effect of standardization in reverse logistics system

Abstract

This study analyzes the effect of standardization of product e.g. glass bottles on the cost reduction in the reverse logistics system with stochastic demand. Standardization of the product makes the reverse logistics procedure quite simple by making the inspection process and exchange process to sort the different-shaped products and exchange them with each other to increase the reuse rate no longer necessary, thus, reducing a lot of cost. Since the standardization also enables the manufacturer to share the inventory with other manufacturers via lateral transshipment, e.g. inventory pooling, we can expect additional cost reduction in certain cases. It is shown that the amount of inventory that the manufacturers should maintain to cope with the variance of the demand is decreased along with the total expected cost by the effect of inventory pooling. The mathematical models before and after standardization are developed where two manufacturers exist, and the expected total costs are compared. Decision variables are the order-up-to level and the unit buy-back price of each manufacturer that minimize total expected cost. Numerical examples serve to illustrate the analytical results.