Managing collecting or remarketing channels: different choice for cannibalisation in remanufacturing outsourcing

Abstract

Cannibalisation is still a concern for original equipment manufacturers (OEMs) when they outsource remanufacturing operations to the authorised remanufacturers (ARs). In dealing with the cannibalisation in remanufacturing outsourcing, many OEMs (such as Sun, Apple, Hewlett Packard, Bosch Tools, and Gateway) use core collecting or remanufactured product remarketing. Motivated by examples from industry, we develop two models in which an OEM produces new products but outsources remanufacturing operations to a AR. The two potential strategies for dealing with the cannibalisation from remanufacturing outsourcing are: (1) collecting used cores from consumers, or (2) remarketing all remanufactured products to consumers. Among other results, we find that minimising cannibalisation problems does not equate with maximising profits. In particular, if the collection cost coefficient is not pronounced, the aggressive response by the OEM can effectively minimise the cannibalisation problems, but will reduce the profitability for the OEM on the other hand. Further, as the collection cost coefficient is moderate, remarketing remanufactured products can secure Pareto improvements. As such, we suggest that, practising managers should combine the cannibalisation problems of remanufacturing with the costs of collecting used cores.