A dynamic environmental hedging point policy for failure-prone hybrid manufacturing/remanufacturing systems

Hybrid manufacturing/remanufacturing systems present a promising solution to achieving sustainable production by integrating remanufacturing strategies and reducing environmental impact. However, balancing the economic and environmental trade-offs in these systems, especially under the influence of random machine failures and greenhouse gas (GHG) emissions constraints, remains a critical challenge. This study proposes a dynamic Environmental Hedging Policy (DEHPP) tailored for failure-prone hybrid production systems operating under carbon tax regulations. The policy dynamically synchronises manufacturing and remanufacturing operations, switching priority between machines based on inventory thresholds, emission levels, and machine availability. The proposed control framework is derived using stochastic optimal control theory and validated through numerical resolution. The results show that the policy effectively minimises total costs, including inventory holding, backlog, production, and emissions costs. Sensitivity analyses reveal the impact of key parameters such as costs, failure and emission rates on the optimal parameters of the policy and system performance. A comparative evaluation against two adapted benchmark policies from the literature shows that DEHPP achieves up to 40% lower discounted total cost across wide variations in costs, failure, repair and emission rates. Managerial insights are provided to help decision-makers implement the policy in real-world scenarios, optimising production strategies and adhering to environmental regulations.