Policies for inventory models with product returns forecast from past demands and past sales

Abstract Finite horizon periodic review backlog models are considered in this paper for an inventory system that remanufactures two types of cores: buyback cores and normal cores. Returns of used products as buyback cores are modelled to depend on past demands and past sales. We derive an optimal inventory policy for the model in which returns are forecast to depend on past demands, and analyze properties of the optimal cost and optimal policy we derived. As the structure of the optimal inventory policy for the model in which returns are forecast from past sales is unlikely to be tractable, we instead consider a feasible inventory policy with a nice structure for this model. We investigate how close this policy is to optimality and find that in the worst case, the difference in system costs between the feasible policy and the optimal inventory policy is bounded by a constant that is dependent only on cost parameters, mean demands and a discount factor, and is independent of the planning horizon and initial inventories. We also perform numerical experiments to study the difference between system costs under the feasible policy and those under the optimal policy.