Leasing or buying white goods: comparing manufacturer profitability versus cost to consumer

Abstract

Remanufacturing can create opportunities for companies to become more sustainable while remaining profitable. However, not all companies will be able to profit from moving towards a closed-loop business model. This paper investigates the profitability of leasing and remanufacturing washing machines for a large white goods producer based on data provided by them. A simple analytical model is built to simultaneously estimate the costs for consumers and costs and profits for the manufacturer under the leasing system. The results are compared with the costs and profitability of the linear system where premium, economy, and budget washing machines are sold to consumers. A sensitivity analysis is conducted on important factors such as repair, administration and transport costs. Using the replacement chain method, we show that the consumer costs of budget washing machines in the sales system is significantly higher than the costs for premium washing machines. Consequently, those consumers would benefit most from a circular system in which premium washing machines are leased against acceptable fees. However, the additional costs for the manufacturer make it a challenge to generate the same level of profit as in the linear system. The research discusses important cost components companies will have to address when making a move towards a circular business model with leasing and remanufacturing.

Keywords:

• circular economy
• closed-loop supply chains
• total cost of ownership
• profitability
• remanufacturing

Acknowledgements

An early version of this paper was presented at the International Conference on Remanufacturing on 24–26 November 2017, Linköping, Sweden.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 All data is provided by the manufacturer, although slightly changed to protect confidentiality.

Additional information

Funding

This work has been conducted as part of the ResCoM project that has received funding from the European Union’s Seventh Programme for research, technological development and demonstration under grant agreement No 603843.