Dynamic buy-back for product recovery in end-of-life spare parts procurement

Abstract

The efficient supply of spare parts is of prime concern for original equipment manufacturers (OEM). While manufacturing the parent product, spare parts can be sourced efficiently by using existing manufacturing facilities. This situation completely changes once the original equipment manufacturer ceases production of the parent product. In addition to traditional spare parts sources in the form of final order and remanufacturing, the option to buy back parts or products provides a viable alternative in the end-of-life phase. This can prevent the OEM from fulfilling his spare parts availability obligation or increase his ability to remanufacture. Current practice in industry is, on the one hand, to offer trade-in campaigns to acquire functional products from customers by giving substantial discounts on a new-generation product. On the other hand, trade-in rebates are given when customers return their broken parts in exchange for spare parts. We propose the consideration of a third option, i.e. to buy back broken products in order to improve control of both demand for spare parts and supply of recoverable parts. This contribution seeks to assess the potential benefit of buy-back strategies in contrast to both traditional sourcing and trade-in campaigns for different settings regarding information availability and buy-back flexibility. For each situation, a MILP formulation is presented, and in a numerical study we analyse the circumstances under which the buy-back of broken products is especially beneficial for the OEM.