Remanufacturing production decisions considering product life cycle and green consumers' scale in the circular economy
| DOI | https://doi.org/10.1108/IMDS-03-2022-0135 |
| Published date | 06 September 2022 |
| Date | 06 September 2022 |
| Pages | 1122-1156 |
| Subject Matter | Information & knowledge management,Information systems,Data management systems,Knowledge management,Knowledge sharing,Management science & operations,Supply chain management,Supply chain information systems,Logistics,Quality management/systems |
| Author | Bohai Liu,Qi Song,Handong Zheng,Yaoyao Ma,Kai Li |
Remanufacturing production
decisions considering product life
cycle and green consumers’scale
in the circular economy
Bohai Liu
School of Management, Hefei University of Technology, Hefei, China;
Key Laboratory of Process Optimization and Intelligent Decision-making,
Ministry of Education, Hefei, China and
Ministry of Education Engineering Research Center for Intelligent
Decision-Making and Information System Technologies, Hefei, China
Qi Song, Handong Zheng and Yaoyao Ma
School of Management, Hefei University of Technology, Hefei, China, and
Kai Li
School of Management, Hefei University of Technology, Hefei, China and
Key Laboratory of Process Optimization and Intelligent Decision-making,
Ministry of Education, Hefei, China
Abstract
Purpose –In this paper, the authors aim to study the optimal strategy of original equipment manufacturers
(OEMs) considering both consumer segmentation and upward substitution of remanufactured products in the
product life cycle.
Design/methodology/approach –In this paper, the authors de velop two remanufactu ring models: the
OEM remanufacturing m odel and the authoriz ed remanufacturing m odel. Then, the authors study the
impact of both green cons umers’scale and the product life cycle expre ssed as the market growth rate on
the OEM’s optimal decision-mak ing. Therefore, the authors derive the optimal so lutions of the two models
by using game theory.
Findings –The authors find that in the case of low market growth rate, when there only exist ordinary
consumers, if the substitutability of remanufactured products produced by the OEM is below one
threshold or above another threshold, the OEM can obtain higher profit in the OEM remanufacturing
model, and vice versa. If the substitutability of remanufactured products produced by the OEM is below a
threshold when there are both ordinary and green consumers, the OEM prefers the authorized
remanufacturing model; and viceversa. Moreover, in the case of high market growth rate, the OEM prefers
the OEM remanufacturing model only when the substitution-level in OEM remanufacturing model is
above a threshold.
Originality/value –The present study fills the gap in existing researches by simultaneously discussing
product life cycle and green consumers’scale. The authors provide manufacturers with a new basis for
remanufacturing decisions.
Keywords OEM remanufacturing, Authorized remanufacturing, Product life cycle, Green consumers,
Upward substitution
Paper type Research paper
IMDS
123,4
1122
This work is supported by the National Natural Science Foundation of China under grants 71871076 and
the Fundamental Research Funds for the Central Universities No. JS2021ZSPY0020, JZ2021HGQA0210.
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/0263-5577.htm
Received 4 March 2022
Revised 16 May 2022
5 July 2022
Accepted 20 July 2022
Industrial Management & Data
Systems
Vol. 123 No. 4, 2023
pp. 1122-1156
© Emerald Publishing Limited
0263-5577
DOI 10.1108/IMDS-03-2022-0135
1. Introduction
Rapidly depleting resources and increasingly serious environmental problems have forced
people to pursue sustainable business models. The emergence of circular economy (CE) has
promoted the research on sustainable development. The CE can realize sustainable
development of society and economy by minimizing waste of resources and recycling end-of-
life (EOL) products. Moreover, as an important technical support of CE, remanufacturing is
an important way to realize the recycling of waste products. Remanufacturing is a process in
which waste products or parts are professionally repaired or upgraded so that their quality
and performance are not lower than those of new products. Compared with new products,
remanufactured products can save 50% of costs, 60% of energy, 70% of materials and more
than 80% of air pollution emissions (Li et al., 2020). Many governments attach great
importance to the development of remanufacturing industry due to its CE performance.
With the development of remanufacturing industry, consumer’s recognition of
remanufactured products has been increased gradually. For example, Volvo requires
remanufactured products to be consistent with new products in terms of technical standards,
specifications and systems. Generally, remanufactured products will replace new products
produced by original equipment manufacturers (OEMs) to some degree. The way that high-
value products replace low-value products is called downward substitution; otherwise, it is
called upward substitution (Inderfurth, 2004). The substitution of remanufactured products
on new products is a typical upward substitution. However, the substitution capacity of
remanufactured products depends on the reputation of remanufactured products and the
identity of remanufacturers to some extent (Subramanian and Subramanyam, 2012). In the
remanufacturing industry, some OEMs engage in remanufacturing itself, such as IBM,
Hewlett–Packard and Kodak (Fang et al., 2017;Qian et al., 2020;Jin et al., 2022). However, in
the automotive, electronic products and other industries, some OEMs outsource or authorize
to third-party remanufacturers (TPRs) as they are reluctant to invest in remanufacturing
equipment. For example, Land Rover provides remanufacturing authorization to caterpillar
(Zou et al., 2016). Moreover, compared with the manufacturer-remanufacturing model, the
TPRs have more professional remanufacturing capacity and can produce higher-value
remanufactured products (Liu et al., 2018).
However, the upward substitution of remanufactured products has not been accepted by
all consumers. Consumers whose perceived value of new products is higher than that of
remanufactured products believe that the substitution of remanufactured products is a
degradation treatment. Therefore, previous research works have mainly focused on the
downward substitution of new products or the mutual substitution between products.
However, enterprises are more flexible in dealing with the substitution between products.
Consumers accept the substitution of remanufactured products when the capacity of new
products is limited (Liang et al., 2013).
Besides replacing new products, remanufactured products can also save more energy
than new products (Gutowski et al., 2011). With the improvement of people’s environmental
awareness, more and more consumers are willing to buy remanufactured products mainly
because of their environmental benefits rather than just because of their price. Recently,
governments and environmental protection organizations encourage consumers to buy
greener remanufactured products. There are more and more green consumers with
environmental protection consciousness in the market. Ordinary consumers whose perceived
value of remanufactured products is lower than that of new products are unwilling to buy
low-level remanufactured products to substitute new products. For green consumers, they
believe that there is no difference between remanufactured and new products. Green
consumers are more inclined to buy remanufactured products, comprehensively considering
price and environmental protection (Abbey et al., 2015). Hence, different types of consumers
have obvious differences in the utility of new and remanufactured products. Differences in
Product life
cycle and green
consumers’
scale
1123
green consumers’proportion will lead to significant changes in the demand function of
products, which will have an important impact on OEM’s remanufacturing decision-making
(Michaud and Llerena, 2011). Therefore, it’s necessary to consider the diversity of consumer’s
behavior in the closed-loop supply chain. It’s also a crucial consideration to set that there are
ordinary and green consumers, and study the impact of their proportion distribution on
OEM’s decision.
In the above-mentioned research works, the market scale was constant in the proposed
model. However, the market scale will change dynamically due to the differences of
development periods in the real world. Generally, product life cycle includes introduction
stage, growth stage, maturity stage and decline stage. In the introduction period, the quantity
of products is relatively low. As the product gradually enters the growth period, the
quantities of new and remanufactured products have been increased rapidly (Golder and
Tellis, 2004;Tibben Lembke, 2002;Zhong et al., 2017). The growth rate of products
determines the market scale in the next period, which will lead to the change of new and
remanufactured products’demand (Atasu et al., 2008). Therefore, it’s more practical to
consider the impact of market scale in different periods on remanufacturing decision-making.
Moreover, for industries with short life cycle, such as auto parts and electronics, the
upgrading speed of products is fast. Even if the life of the product has not ended, it will
become waste product due to the emergence of a new generation of product (Hsueh, 2011).
Since waste products are used as cores for remanufacturing, the market capacity of
remanufactured products is closely related to the market capacity of new products in the first
period. The demand of remanufactured products in different industries will vary
significantly due to market scale’s change. Consequently, considering OEM’s
remanufacturing decision from the perspective of product life cycle is not only practical,
but also helps OEM to reasonably control the production of products in different periods,
reduce costs and avoid backlog.
The existing research works mostly have ignored many important factors with strategic
influence, such as green consumers and product life cycle. Based on the above research
works, we aim to solve the following problems:
(1) From the perspective of profit maximization, should the OEM engage in
remanufacturing itself or authorize to TPR, considering the substitution ability of
remanufactured products and green consumers’scale?
(2) From the product life cycle perspective, how does the market growth rate affect
OEM’s decision?
(3) From the environmental impact perspective, which model is the better choice for
OEM considering environmental factors?
In this paper, we construct two remanufacturing models to solve these questions: the OEM
remanufacturing model and the authorized remanufacturing model. We consider the impacts
of green consumers’scale and the upward substitution of remanufactured products on OEM’s
decision-making from the perspective of the product life cycle. The contributions of this paper
are as follows.
Firstly, we assume that remanufactured products have ability to replace new products,
and clearly distinguish the substitution ability in the two models based on the identity of
remanufacturers. Secondly, we consider that there are ordinary and green consumers; and
green consumers will not buy new products in the presence of remanufactured products.
Thus, according to the division proportion of green consumers, we obtain the demand
function of remanufactured products, which is different from previous studies (Zhou and
Yuen, 2021;Jin et al., 2022). Thirdly, previous studies mostly considered the impact of other
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