Operational Decisions on Remanufacturing under the Product Innovation Race

Abstract

To obtain a competitive advantage in the marketplace, firms usually need to adopt an innovation program as a key strategic initiative. New product innovation is usually accompanied by discarding the old products and results in negative effects on the environment. Conversely, to maintain environmental sustainability, a greater number of governments have enacted regulations to promote remanufacturing as an integral part of manufacturers’ existing businesses. However, at the firm level, remanufacturing may induce the cannibalization of new product sales. The primary goal of this paper is to provide firms with guidelines for the operational decisions on remanufacturing under the product innovation race. In particular, from a profit-maximization perspective, we suggest that the cost-efficient firm should look for cost-reduction opportunities in remanufacturing operations; otherwise, it should invest more resources into new product development. Our analysis also provides insights for environmental groups and agencies by indicating that improved environmental sustainability should involve not only setting collection targets but the implementation of additional reuse targets as well.