Abstract
While remanufacturing is highly encouraged worldwide, some original equipment manufacturers (OEMs) in the electrical and electronics industry are still not willing to embrace remanufacturing, for fear of expensive investment or the cannibalization of existing products. Meanwhile, third-party remanufacturers’ (TPRs) remanufactured products are developing quickly. Due to quality reasons, consumers usually have a higher preference for OEM-certified remanufactured products than uncertified ones. As such, remanufacturing certification has become a strategy that OEMs can use to benefit from product remanufacturing. Our paper focuses on the remanufacturing certification contract between an OEM and a TPR. Once certified, the TPR makes payments to the OEM. These payment terms will affect their enthusiasm for participating in remanufacturing certification. By establishing game models among an OEM, a certified TPR, and an uncertified TPR, our paper explores three certification contracts, namely, the lump-sum payment, profit-sharing payment, and piece-rate payment. We identify the conditions for the OEM and certified TPR to reach a win-win outcome. Our results show that when TPRs have a high profit margin and there is no significant difference in consumers’ preferences between certified and non-certified remanufacturing channels, the profit-sharing payment contract yields the highest profit; otherwise, the piece-rate payment contract is best for the OEM.
Highlights
With the increasing awareness of sustainable manufacturing, remanufacturing has been growing quickly in the electrical and electronic industry, due to environmental concerns, government legislation, corporate social responsibility, and sustainable competitiveness [1,2]
(1) The paper studies three feasible certification contracts by building a three-player game model framework consisting of an original equipment manufacturers (OEMs), a certified third-party remanufacturers’ (TPRs), and an uncertified TPR; (2) Remanufacturing certification is a strategic choice for a TPR, and this paper studies the conditions under which an OEM and a certified TPR can achieve a win-win outcome; (3) By comparing three certification contracts, the optimal contract is discussed for the OEM, which can provide managerial insights for manufacturers’ remanufacturing practice
Based on this observation, remanufacturing certification is a strategy that OEMs can use to benefit
Summary
With the increasing awareness of sustainable manufacturing, remanufacturing has been growing quickly in the electrical and electronic industry, due to environmental concerns, government legislation, corporate social responsibility, and sustainable competitiveness [1,2]. (1) In the contract of lump-sum payment, a certified TPR pays a one-time certification fee to the OEM. (2) In the contract of profit sharing, a certified TPR pays a certain percentage of its profit to the OEM as certification fees This kind of contract form, along with wholesale pricing, has been commonly used in supply chain collaboration [20,21]. (3) In the contract of piece-rate payment, a certified TPR pays a certification fee for each remanufactured product. This contract has been proposed by Oraiopoulos et al [10] in the relicensing of some manufacturers.
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