Does Customer Order Matter? Explore The Dynamics of Lost-sales Remanufacturing System Under AR(1) Demand

This paper investigates the system dynamics of a hybrid manufacturing and remanufacturing system operating under the first-order autoregressive (AR(1)) demand and governed by lost-sales rules. Lost sales occur when customers, after encountering a stock-out, are unwilling to delay their purchases. This is particularly relevant in industries like groceries, clothing, and cell phones, where customers are more sensitive to stock-outs compared to backlog systems. Given the presence of autocorrelated AR(1) demand in these industries, the study focuses on how lost sales affect the system dynamics of a hybrid manufacturing-remanufacturing in a Closed-Loop Supply Chain (CLSC). The study finds that, under lost-sales conditions, the hybrid system performs better than a linear system in terms of reducing the bullwhip effect and inventory variance, when the autoregressive return parameter is lower—indicating weaker correlations between current and previous returns. Additionally, lost sales modify the influence of system structures on inventory variance under AR(1) demand. These insights provide key managerial implications for controlling bullwhip and inventory variance costs in products characterized by autoregressive demand patterns, particularly when facing lost-sales scenarios.