Improving Remanufacturing Core Recovery and Profitability Through Seeding

Abstract

Through analytical modeling and a numerical study grounded in observations from automotive remanufacturing, this study examines seeding—selling new products as remanufactured at the start of a new product's lifecycle—in order to increase core recovery quantities, to allow firms to start efficient remanufacturing earlier, and to fulfill demand for remanufactured products throughout the product's lifecycle. Though seeding has received little attention in the academic literature, many durable goods industries, such as automotive parts and heavy equipment remanufacturing, employ seeding because a lack of used units (cores) significantly constrains their remanufacturing operations. The results reveal that the cost of producing a new unit and the shape of the product lifecycle curve are key determinants of the profitability of seeding. Specifically, if the price of the remanufactured product is less than the cost of producing a new unit, then the profitability of seeding is impacted negatively when the product lifecycle ramps up slowly or when there is a large time lag for the recovery of seeded units. In effect, initial sales of seeded units at a loss for a longer period reduces and potentially nullifies the benefits of seeding. Conversely, if initial sales of seeded units are profitable, then a slower ramp‐up of the product lifecycle or a large time lag for the recovery of seeded units has a positive impact on the profitability of seeding because seeding under these circumstances allows the firm to meet demand for remanufactured products profitably earlier in the lifecycle. The results from a numerical study indicate that seeding increases total remanufacturing profits by an average of 23% and a maximum of 40% over the product's lifecycle.