Optimal Strategies for a Closed-Loop Hybrid System with Supply Disruption in E-Commerce Environment

Abstract

This work studies the optimal pricing and operation strategies of a closed-loop hybrid system with supply disruption in e-commerce environment. The closed-loop hybrid system consists of a single manufacturer and a single retailer in which the demand is satisfied by manufacturing from raw materials sourced from two different suppliers (the primary supplier and the secondary supplier) as well as remanufacturing from returned items into as-new products. The two suppliers charge different prices, the cheaper one has a high probability of supply disruption for the raw materials. A model is developed to maximize the overall expected profit of the system by jointly determining the online and offline prices of the manufactured/remanufactured products of the manufacturer and the retailer respectively, the number of remanufacturing and manufacturing frequency ratio and the required minimum quality level of the returned products. A numerical example is used to verify the validity of the model by adopting Genetic Algorithm (GA) and Particle Swarm Optimization (PSO) Algorithm. Sensitivity analysis is also tendered to analyze the impact of supply disruption.