Effects of Remanufacturable Product Design on Market Segmentation and the Environment

Abstract

Despite documented benefits of remanufacturing, many manufacturers have yet to embrace the idea of tapping into remanufactured-goods markets. In this paper, we explore this dichotomy and analyze the effect of remanufacturable product design on market segmentation and product and trade-in prices by studying a two-stage profit-maximization problem in which a price-setting manufacturer can choose whether or not to open a remanufactured-goods market for its product. Our results suggest that it is optimal for a manufacturer to design a remanufacturable product when the value-added from remanufacturing is relatively high but product durability is relatively low and innovation is nominal. In addition, we find that entering a remanufactured-goods market in and of itself does not necessarily translate into environmental friendliness. On the one hand, the optimal trade-in program could result in low return and/or remanufacturing rates. On the other hand, a low price for remanufactured products could attract higher demand and thereby potentially result in more damage to the environment. Meanwhile, external restrictions imposed on total greenhouse gas emissions draw criticism in their own right because they risk stifling growth or reducing overall consumer welfare. Given these trade-offs, we therefore develop and compare several measures of environmental efficiency and conclude that emissions per revenue can serve as the best proxy for emissions as a metric for measuring overall environmental stewardship.

Impact of product-design strategies on the operations of a closed-loop supply chain

“…For instance, as an engine producer, Cummins produces both new and remanufactured engines (here, the engine is a final product of Cummins). Its remanufactured engines are used to replace broken ones in faulty vehicles (Shi et al, 2016).It is apparent that Cummins' remanufactured engines compete with its new products, thereby reducing demand for engine parts such as bent axles. Another example is that automatic gearboxes used in many domestic automakers in China are bought from a Japanese firm, Aisin Group.…”

The Optimal Green Product Design with Cost Constraint and Sustainable Policies for the Manufacturer

“…Bala et al studied how the global distribution of product development impacts the profitmaximizing product line with low-end and high-end customer segments [14]. Shi et al investigated the impact of remanufacturable product design on market segmentation and trade-in prices [15]. e above literature mainly studies the optimal product configuration with diverse consumers; however, the environmental consumer and ordinary consumer are not considered in detail; in addition, the cost constraint is not incorporated.…”

Design and planning of a closed-loop supply chain with three way recovery and buy-back offer

“…Through an empirical research, Li et al (2011) argued that the companies involved in product recovery must include product's characteristics to design and manage trade-in programs effectively and efficiently. Shi et al (2016) developed a two-stage profit-maximization model and analyzed the effect of designing a remanufacturable product on return rate of used products and trade-in prices for remanufactured products.…”