Abstract
Remanufacturing outsourcing creates the cannibalisation for the original equipment manufacturers’ (OEMs’) new products sales. In dealing with the cannibalization from the third-party remanufacturer (3PR), many OEMs such as ATK, Canada Engines, Ford and Land Rover, undertake used cores collecting or remanufactured products remarketing. Motivated by examples from industry, we develop two models in which an OEM produces new products but outsources remanufacturing operations to a 3PR according to two potential strategies in dealing with the cannibalization from remanufactured products: 1) collecting used cores from consumers or 2) remarketing all remanufactured products to consumers. Among other results, we find that, if the collection cost coefficient is not pronounced, the OEM would prefer remarketing remanufactured products than undertaking used cores collection, though the former creates fiercer cannibalization problems for new products sales. Further, as the collection cost coefficient is moderate, remarketing remanufactured products can create a win-win result for both parties. As such, we suggest that, practicing managers should focus both on the cost of collecting used cores and the cannibalisation problems of remanufacturing. This complements existing results which show that when remanufacturing is out-sourced, the OEM equate minimising cannibalisation with maximizing profits.
Highlights
Cannibalisation problems are perhaps one of the most common business issues that marketing managers need to confront (Kotler & Keller, 2012)
Based on Propositions 1, we can conclude that compared to remarketing remanufactured products, collecting used cores is more efficient way for the OEM to deal with the cannibalization problems
This argument is partly consistent with the results of (Guide Jr and Li 2010) who argue that, annual returns of used products in excess of $800 million, a leading networking equipment manufacturer scraps almost all of their product returns instead of remanufacturing due to a fear of new product sales cannibalization
Summary
Cannibalisation problems are perhaps one of the most common business issues that marketing managers need to confront (Kotler & Keller, 2012). Based on the above motivations, we develop two models in which an OEM produces new products but outsources its remanufacturing operations to a 3PR with two possible options for dealing with cannibalisation problems caused by remanufacturing: 1) Participation in remanufacturing operations by collecting cores from consumers (Model T) or 2) participating in remanufacturing operations by remarketing all remanufactured products to consumers (Model R) Using these two models, we intend to address the following questions. There are numerous studies addressing issues related to cannibalisation problems in remanufacturing outsourcing, including (Debo et al, 2005, Ferguson & Toktay, 2006, Oraiopoulos et al, 2012, Wang et al, 2017); none have paid attention to how different strategies undertaken by OEMs affect cannibalisation effects from 3PR remanufacturing.
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