Substitution in a hybrid remanufacturing system

Increasing legislative and societal pressures are requiring manufacturers to operate more sustainably and to take responsibility for the fate of their goods after they have been used by consumers. A hybrid remanufacturing system, in which newly produced and remanufactured used goods are sold on separate markets but also act substitutes for each other, is described and modelled using a semi-Markov decision process. The model provides an optimal policy, which specifies production, remanufacturing and substitution decisions. The model is used to explore the properties of this hybrid remanufacturing system, and in particular, the managerial implications associated with upward and downward substitution.