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Product and sales contract design in remanufacturing

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  • Yalabik, Baris
  • Chhajed, Dilip
  • Petruzzi, Nicholas C.

Abstract

We develop and analyze an economic model of remanufacturing to address two main research questions. First, we explore which market, cost, and product type conditions induce a profit-maximizing firm to be a remanufacturer, given a separate (secondary) remanufactured goods market. Such markets exist for consumer goods, where “newness” is a differentiating factor. Second, we describe what effect profitable remanufacturing has on the environment. Our stylized modeling framework for analyzing these issues incorporates three components: lease contracting, product design, and remanufacturing volume. To operationalize this framework, we model and solve for the optimal decisions of two firm types: a non-remanufacturer, which we call a traditional firm, and a remanufacturer, which we call a green firm. We describe conditions under which remanufacturing is (and is not) profitable, and demonstrate that under certain cost and market conditions remanufacturing has negative consequences for the environment. Our results have implications for firms and policy makers who would like to choose remanufacturing as a strategy to improve profitability and environmental performance, given the existence of conditions under which neither might occur.

Suggested Citation

  • Yalabik, Baris & Chhajed, Dilip & Petruzzi, Nicholas C., 2014. "Product and sales contract design in remanufacturing," International Journal of Production Economics, Elsevier, vol. 154(C), pages 299-312.
    • Handle: RePEc:eee:proeco:v:154:y:2014:i:c:p:299-312
    DOI: 10.1016/j.ijpe.2013.09.008
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    References listed on IDEAS

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    Cited by:

    1. Zhang, Yibin & Hafezi, Maryam & Zhao, Xuan & Shi, Victor, 2017. "Reprint of “The impact of development cost on product line design and its environmental performance”," International Journal of Production Economics, Elsevier, vol. 194(C), pages 126-134.
    2. Aydin, R. & Kwong, C.K. & Ji, P., 2015. "A novel methodology for simultaneous consideration of remanufactured and new products in product line design," International Journal of Production Economics, Elsevier, vol. 169(C), pages 127-140.
    3. Zhang, Yibin & Hafezi, Maryam & Zhao, Xuan & Shi, Victor, 2017. "The impact of development cost on product line design and its environmental performance," International Journal of Production Economics, Elsevier, vol. 184(C), pages 122-130.
    4. Qin Yang & Lin Sun, 2024. "Eco-Design in Manufacturing or Remanufacturing? The Sustainable Options in a Closed-Loop Supply Chain with Outsourcing," Sustainability, MDPI, vol. 16(4), pages 1-15, February.
    5. Bhattacharya, Shantanu & Robotis, Andreas & Van Wassenhove, Luk N., 2019. "Installed base management versus selling in monopolistic and competitive environments," European Journal of Operational Research, Elsevier, vol. 273(2), pages 596-607.
    6. Ghosh, Debabrata & Gouda, Sirish & Shankar, Ravi & Swami, Sanjeev & Thomas, Vinu Cheruvil, 2018. "Strategic decision making under subscription-based contracts for remanufacturing," International Journal of Production Economics, Elsevier, vol. 200(C), pages 134-150.
    7. Chen, Jen-Ming & Hsu, Yu-Ting, 2017. "Revenue management for durable goods using trade-ins with certified pre-owned options," International Journal of Production Economics, Elsevier, vol. 186(C), pages 55-70.
    8. Gu, Wenjun & Chhajed, Dilip & Petruzzi, Nicholas C. & Yalabik, Baris, 2015. "Quality design and environmental implications of green consumerism in remanufacturing," International Journal of Production Economics, Elsevier, vol. 162(C), pages 55-69.

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