Product and sales contract design in remanufacturing

Baris Yalabik, Dilip Chhajed, Nicholas C. Petruzzi

Research output: Contribution to journalArticle

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.

Original languageEnglish (US)
Pages (from-to)299-312
Number of pages14
JournalInternational Journal of Production Economics
Volume154
DOIs
StatePublished - Aug 2014

Keywords

  • Durable goods
  • Economic modeling
  • Green consumerism
  • Product design
  • Remanufacturing

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering

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