MANAGING PRODUCT RETURNS FOR REMANUFACTURING

TLDR

Firms are encouraged to offer environmentally friendly products, but realistic expectations require profitable ventures that increase shareholder wealth; product acquisition management influences key business decisions and future research must link acquisition price to returned product quality. The study develops a framework to analyze reuse profitability, demonstrating that managing product returns—through acquisition control, value creation, and EVA‑based trial and error—directly influences the profitability and operational aspects of remanufacturing. The authors develop a framework that analyzes reuse profitability and links product return management to operational requirements. The authors find that acquiring used products serves as a control lever for reuse profitability, that product return management affects overall profitability via a trial‑and‑error EVA approach, and that operational issues are strongly impacted by the return management strategy.

Abstract

Firms are often encouraged to offer environmentally friendly products as a demonstration of corporate citizenship. However, this may prove to be an unrealistic expectation since a rational firm will only engage in profitable ventures; those that increase shareholder wealth. We develop a framework for analyzing the profitability of reuse activities and show how the management of product returns influences operational requirements. We show that the acquisition of used products may be used as the control lever for the management and profitability of reuse activities. These activities, termed product acquisition management, affect several important business decisions. First, if a firm is to pursue reuse activities, these reuse activities must be value‐creating. Second, if a firm is to compete by offering remanufactured products, then we show how product returns management influences the overall profitability of such activities via a trial and error EVA approach. Third, we show how operational issues are strongly affected by the approach used to manage product returns. There is a need for future research specifying the mathematical relationship between acquisition price and the nominal quality of the returned product.