An NPV and AC Analysis of a Stochastic Inventory System with Joint Manufacturing and Remanufacturing

Erwin van der Laan

ERIM Report Series Research in Management from Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam

Abstract: While the net present value (NPV) approach is widely accepted as the right framework for studying production and inventory control systems, average cost (AC) models are more widely used. For the well known EOQ model it can be veri_ed that (under certain conditions) the AC approach gives near optimal results. This paper investigates whether the same holds for two-source systems with joint manufacturing and remanufacturing. It appears that the performance of the AC approach stands or falls with the right choice of the holding cost parameters. Through the analysis of a deterministic model a theoretical basis is provided for choosing the parameters. Then, given this set of holding cost parameters, the performance of the AC approach is tested in a stochastic model.

Keywords: Net present value; average costs; holding costs.; inventory control; remanufacturing (search for similar items in EconPapers)
JEL-codes: L23 M M11 R4 (search for similar items in EconPapers)
Date: 2000-10-06
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Citations: View citations in EconPapers (2)

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Journal Article: An NPV and AC analysis of a stochastic inventory system with joint manufacturing and remanufacturing (2003)
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