Forecast Evolution in the Final Order Problem with Product Returns

31 Pages Posted: 9 Jun 2017

See all articles by Christian Bohner

Christian Bohner

Technische Universität München (TUM) - TUM School of Management

Stephen C. Graves

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Stefan Minner

Technische Universität München (TUM) - TUM School of Management

Date Written: June 8, 2017

Abstract

We consider the final order problem of a spare parts provider who faces customer demands and receives product returns. The returns can be remanufactured for reuse, or can be disposed. There are forecasts for both demands and returns over the remainder of the product life. We consider an evolution of forecasts and examine its influence on remanufacturing policies and costs.

We prove the structure of the optimal policy. Using stochastic dynamic programming, we find the following results:

(i) In many instances, there exists a flexibility effect of forecast evolution. Under this effect, we place larger final orders and keep more returns than without forecast evolution. This gives us the ability to respond to new information.

(ii) There is a pull-away-from-center effect when there is no forecast update.

If we can update the forecasts, then the last buy quantity is less sensitive to the costs, i.e. we buy less at lower costs and more at higher costs compared to the last buy without a forecast update. In a numerical study, we find that a consideration of forecast evolution yields significant cost savings, especially if we have time-dependent demands. The largest part of the savings is obtained from updating the demand forecasts; updating the return forecasts has only a small influence.

Keywords: final order, last-time buy, forecast evolution, remanufacturing, disposal

Suggested Citation

Bohner, Christian and Graves, Stephen C. and Minner, Stefan, Forecast Evolution in the Final Order Problem with Product Returns (June 8, 2017). Available at SSRN: https://ssrn.com/abstract=2983053 or http://dx.doi.org/10.2139/ssrn.2983053

Christian Bohner (Contact Author)

Technische Universität München (TUM) - TUM School of Management ( email )

Arcisstr. 21
Munich, 80333
Germany

Stephen C. Graves

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E62-579
77 Massachusetts Avenue
Cambridge, MA MA 02139
United States
617-253-6602 (Phone)
617-253-1462 (Fax)

HOME PAGE: http://web.mit.edu/sgraves/www/

Stefan Minner

Technische Universität München (TUM) - TUM School of Management ( email )

Arcisstrasse 21
München, 80333
Germany

HOME PAGE: http://www.log.wi.tum.de

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
93
Abstract Views
748
Rank
502,806
PlumX Metrics