In-house or outsourcing? The impact of remanufacturing strategies on the dynamics of component remanufacturing systems under lifecycle demand and returns

Abstract

We consider a component manufacturing and remanufacturing system where, due to the end-of-life warranty, new and after-sales demand must be satisfied. Two kinds of demand exhibit different lifecycle patterns with different scales and a time lag, while a third correlated component return lifecycle with again a different lag and scale, driven by adoption of remanufacturing, is also presented. To achieve supply and demand balance during demand lifecycles, companies need a strategic decision on their remanufacturing: remanufacturing outsourcing strategy (ROS) or remanufacturing in-house strategy (RIS), yet inadequately studied from system dynamics perspective. We developed base-stock system dynamics models and analytically explored the dynamic implications of RIS and ROS remanufacturing strategies under correlated lifecycle demand and returns. Applying z-transform and discrete time simulation, we found that RIS outperforms ROS system including less peak capacity cost, less inventory holding cost and less backlog cost. Also, the bullwhip of the RIS is always less than the ROS system. However, the adoption of the RIS may result longer-lasting manufacturing production and thus lead to a higher cost: an important cost needs to be strategically considered. Thereby, from system dynamics perspective, the component manufacturer needs carefully consider trade-offs between production and inventory costs, as well as their demand lifecycle characteristics to choose the right remanufacturing strategy.