The impact of a substitution policy on the bullwhip effect in a closed loop supply chain with remanufacturing
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The impact of a substitution policy on the bullwhip effect in a closed loop supply chain with remanufacturing Linda Tombido 1 & Imam Baihaqi 1 Received: 25 September 2018 / Accepted: 17 April 2020/ # Springer Nature B.V. 2020
Abstract
Remanufacturing is a process that usually result in a used product being as good as new. However, not all customers view remanufactured products as similar to new products. Some customers perceive remanufactured products to be inferior in terms of quality compared to new products. In such cases, there is usually a segmentation of markets for new and remanufactured products. This paper focused on the impact of having segmented markets for new and remanufactured products. By developing systems dynamics models, the paper investigated the impact of having a downward substitution policy between new and remanufactured products on the Bullwhip effect in a closed-loop system that permits not only end of life returns but also returns between supply chain players. The findings of this research suggest that, splitting the market in the presence of other returns increased the Bullwhip effect. An interesting finding was that introducing a downward substitution to a split market reduced the Bullwhip effect but not to the level it was before the market was split. The findings of this paper provided some useful managerial insights on the remanufacturing and supply chain dynamics as measured by the Bullwhip effect. Keywords Reverse logistics . Market segmentation . Downward substitution . Bullwhip effect
Introduction Product substitution usually involves using one product to satisfy the demand of another product. The process can either be temporary or permanent. Product substitution can also be used as an option when current items experience price increases or are unavailable. The
* Linda Tombido [email protected] Imam Baihaqi [email protected]
1
Institut Teknologi Sepuluh Nopember, Surabaya, Indonesia
Journal of Remanufacturing
concept of product substitution can be driven by either the supplier or the customer. In the absence of the customer’s choice of product, a customer may decide to buy another one or leave without buying. In a similar manner, a supplier may choose to satisfy demand for a specific product with another product depending on their inventory position. Iravani, Kolfal, and Van Oyen [1] explained how this substitution can aither be “two way” or “one way”. In the case of “two way” substitution, products can easily substitute each other in either direction. At the same time in “one way” substitution, only one product can substitute another and not vice versa. Ahiska and Kurtul [2] mention the concept of how a superior product can substitute a more inferior one and not vice versa as customers become more conscious of product quality. Rao, Swaminathan, and Zhang [3] gave an example of this type of substitution when they mentioned the customisation methods used at IBM. They described the “cadillac box” method of customisation where the company stores products with all fea
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