Remanufacturing in the Circular Economy

Chapter 3Remanufacturing Business Models

Gilvan C. Souza

Kelley School of Business, Indiana University, Bloomington, IN

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Abstract

In this chapter I present some key business considerations for a firm that performs remanufacturing. In particular, I discuss two key decisions: (1) whether to introduce a remanufactured product, and its competitive implications; and (ii) used product (core) acquisition. In the first decision, I discuss key aspects to be analyzed before an original equipment manufacturer (OEM) decides to introduce a remanufactured version of its product: remanufacturing technology and underlying costs, market acceptance of remanufactured products, used product acquisition logistics, environmental considerations, brand protection, competitive landscape, cannibalization, and market expansion considerations (a function of price points of new and remanufactured products). I then present a simple optimization model that sheds light onto the decision, showing that the OEM’s optimal decision to remanufacture can be characterized by a simple rule of thumb, involving unit remanufacturing and product acquisition cost relative to the unit cost for producing a new product, and consumers’ discount factor for the remanufactured product relative to the corresponding new one. I then extend the model to the case where remanufacturing is performed by third party remanufacturers. I then discuss simple frameworks and decision models for core acquisition, which, ...