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.

KEYWORDS:

• Closed-loop supply chain
• operational research
• remanufacturing outsourcing
• cannibalisation
• competition

Acknowledgements

The authors thank National Natural Science Foundation of China (71531003, 71971043, 71472026 and 71562006), and the Electronic Commerce and Modern Logistics Research Center Program, Key Research Base of Humanities and Social Science, Sichuan Provincial Education Department (DSWL19-8) for supporting this research.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 To distinguish the authorized remanufacturers from those unauthorized third-party remanufacturers, we call them ARs.

2 We thank an anonymous reviewer for pointing this out.

3 This assumption is consistent with the fact that although Apple have outsourced remanufacturing to ARs, in such outsourcing Apple is still the dominant agent who determines the input price for products. Such assumption of the dominant downstream agent can determine the wholesale price for the products is previously well established in the marketing literature (Geylani, Dukes, and Srinivasan 2007; Raju and Zhang 2005). We thank an anonymous reviewer for pointing this out.

4 Greater retail concentration also increases buyers’ bargaining power and thus induces the price of this input to fall Galbraith (1956).

5 It should be noted that these three representative products are also consistent with our earlier motivations from the electrical and electronic industry.

Additional information

Funding

This work was supported by National Natural Science Foundation of China [grant numbers 71531003, 71971043, 71472026, 71562006]; Electronic Commerce and Modern Logistics Research Center Program; Key Research Base of Humanities and Social Science; Sichuan Provincial Education Department [grant number DSWL19-8].

Notes on contributors

Feng Zhang

Feng Zhang is currently a PhD student in School of Management and Economic, University of Electronic Science and Technology of China. His research mainly focuses on operational research, game theory, remanufacturing, and environmental regulation.

Hong Chen

Hong Chen is currently a professor in School of Management and Economic, University of Electronic Science and Technology of China. His research mainly focuses on operational research, marketing management and emergency management.

Yu Xiong

Yu Xiong is Chair of Business Analytics in Surrey Business School, Professor Xiong’s research focuses on sustainable and technological issues in global supply chains, where he has published in leading international journals, including European Journal of Operational Research, International Journal of Production Research, International Journal of Production Economics, and Journal of Operational Research Society. He has been guest editors to International Journal of Operations and Production Management, Technovation, International Journal of Technology Management etc. He is the Editor in Chief of International Journal of Chinese Culture and Management.

Wei Yan

Wei Yan is currently an Associate Professor in School of Management and Economic, University of Electronic Science and Technology of China. His research mainly focuses on operational research, game theory, remanufacturing, and environmental regulation and published in international journals, such as European Journal of Operational Research and Journal of Operational Research Society.

Meilian Liu

Meilian Liu is currently a professor in Business school, Guilin University of Electronic Technology. Her research mainly focuses on operational research, behaviour operation and management, and green logistics.