On the non-optimality of the average cost approach for inventory models with remanufacturing

Abstract

When analysing average cost (AC) inventory models, it is common use to add the discount rate times the capital tied up in a product to the out-of-pocket holding cost rate. This way, capital costs are (roughly) included. In this paper we show that such a method may not always be appropriate for reverse logistics inventory models with both remanufacturing and disposal of returned products.