Collection represents the first phase of product recovery operations. This research project addresses a methodology for selecting collection strategies by simultaneously optimizing the service area of each collection facility and the financial incentive provided by the collector for each returned product. We represent the collection system via a continuous model, and use a stochastic utility choice model to incorporate the customers’ return decisions. This enables us to model and analyze the collector firm’s profit function under drop-off and pick-up collection strategies, and establish the analytical properties of the optimal collection area and subsidy decisions under each strategy. We show that higher subsidies induce the collector to install less collection facilities under the drop-off strategy, but more facilities under the pick-up strategy. The impact of cost, product and market parameters on the financial subsidy and collection area size, as well as on the choice of the collection strategy is also haracterized. We identify the variable collection cost parameters and the amount of used products in the market area as the main determinants of the collection strategy choice, and illustrate our results with numerical examples.
Junior Faculty Grant
Year Project Started:
Boyaci Tamer and Verter Vedat
Desautels Faculty of Management, McGill University
(e.g type 1000 for 1,000)