424 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 60, NO. 2, MAY 2013 A Hybrid Manufacturing/Remanufacturing System With Random Remanufacturing Yield and Market-Driven Product Acquisition Xiang Li, Yongjian Li, and Soroush Saghafian Abstract—Remanufacturing has created considerable benefits to both industry and community. This paper generates insights into the acquisition management and production planning of a hybrid manufacturing/remanufacturing system. The acquisition quantity of the used products is stochastic and sensitive to the acquisition price, and the uncertain quality of the acquired used products leads to a random yield in the remanufacturing process. With such a market-driven acquisition channel and a random remanufactur- ing yield, it is shown how the acquisition pricing, remanufacturing, and manufacturing decisions can be coordinated in order to maxi- mize the total expected profit. Sequential and parallel remanufac- turing/manufacturing processes are considered in different cases. In each case, we use a stochastic dynamic programming to for- mulate and analyze the model, showing that the optimal policy is characterized by several critical values and functions. We derive conditions under which the firm should open/close the acquisition channel and utilize/discard the remanufacturing option. By com- paring the two cases, we show that expediting the remanufacturing process will help the firm to better utilize the acquisition channel and the remanufacturing option, as the optimal acquisition price and remanufacturing quantity are both higher in the case of se- quential processes. Index Terms—Product acquisition, random yield, remanufac- turing, stochastic dynamic program. I. INTRODUCTION R EMANUFACTURING is an environmentally and eco- nomically sound way to deal with products after customer usage, representing great opportunities for improving produc- tivity, saving resources, and reducing manufacturing costs. Therefore, many firms implement collection channels for used product return and integrate corresponding remanufacturing Manuscript received July 21, 2011; revised January 20, 2012 and May 31, 2012; accepted August 20, 2012. Date of publication October 22, 2012; date of current version April 13, 2013. This work was supported by the Fundamental Research Funds for the Central Universities (No. NKZXZD1103) and National Natural Science Foundation of China (Research Fund No. 71002077). Review of this manuscript was arranged by Department Editor J. Sarkis. X. Li is with the College of Economic and Social Development, Nankai University, Tianjin 300071, China (e-mail: xiangli@nankai.edu.cn). Y. Li is with the Business School, Nankai University, Tianjin 300071, China (e-mail: liyongjian@nankai.edu.cn). S. Saghafian is with the Industrial Engineering, School of Computing, Infor- matics, and Decisions System Engineering, Arizona State University, Tempe, AZ 85281 USA (e-mail: Soroush.Saghafian@asu.edu). This paper has supplementary downloadable material available at http://ieeexplore.ieee.org. Color versions of one or more of the figures in this paper are available online at http://ieeexplore.ieee.org. Digital Object Identifier 10.1109/TEM.2012.2215873 strategies with their regular production system. For instance, Xerox, which is renowned for its green manufacturing and sustainable services, earned over $80 million by implementing a remanufacturing program in 1997 [1]. Similar examples of the benefits obtained from remanufacturing are easily found in different industries with an estimation of 120 trillion BTUs/year of energy savings worldwide, which accounts for 16 million barrels of crude oil and $500 million in energy costs [2]. To achieve such environmental and economical advantages, the acquisition of used products is regarded as a first step in the remanufacturing process. One way to gather the used products is to utilize a market-driven channel by paying an acquisition price to the end users or the core dealers, which is an effective incentive mechanism to collect an appropriate number of used products for remanufacturing. Since the acquisition quantity of the used products could be larger when a higher acquisition price is offered, this approach grants the firm a partial control on used product returns and, thus, has been widely adopted in the remanufacturing industry (see, e.g., [3] and [4]). However, due to the high fluctuation in times, as well as the quantities and qualities of the return items, such a market-driven acquisi- tion channel should be carefully designed, with the correspond- ing remanufacturing and manufacturing strategies effectively coordinated. The objective of this research is to investigate the acquisi- tion pricing decision and the integrated production planning in a hybrid remanufacturing/manufacturing system with a market- driven channel for used product returns, which is partly moti- vated by our collaboration with a local manufacturing firm of printer ink and toner cartridges in Shandong Province, China. The firm is producing a new version of its self-owned brand toner cartridge, which can be either manufactured from raw materials bought from an outside supplier, or refurbished from the used cartridge. As manufacturing a new one is more costly than refurbishing, the firm exerts substantial efforts to build a collection channel to acquire the used cartridges by offering a refund to the end users who return them. Such a hybrid system is also adopted in the fields that lease office equipment such as photocopiers and printers [5], and in those that manufacture automotive parts [6]–[8], single-use cameras [9], cans, paper, or glasses [10], where a remanufactured unit is treated the same as a newly manufactured one. In these cases, a common prob- lem faced by the manufacturing firms is how to properly set the acquisition price in the collection market, and to harmo- niously produce through the two channels of manufacturing and remanufacturing. The problem is complicated in nature due to 0018-9391/$31.00 © 2012 IEEE