Redesign of service modes for remanufactured products and its financial benefits

Abstract

Remanufacturing has gained an increasing amount of attention due to its contribution to energy saving and pollution reduction. However, remanufactured products have low customer acceptance because people are concerned about quality and after-sales service. Therefore, existing innovative service modes for regular products are used as the basis in this study to develop two different types of service modes (i.e., extended warranty and free replacement service modes) for remanufactured products. Mathematical models are further developed to evaluate the financial benefits that take into consideration linear and nonlinear customer demands. With a sample of 387 customers of remanufactured heavy truck engines, if and how these two new service modes can provide financial gains to a typical leading remanufacturer will be examined in this paper. The empirical analysis results show that customers prefer to buy remanufactured products at a higher price if the new service modes are implemented. However, the profit of remanufacturers will be affected by the increased cost and defect products. Hence, it is essential to observe whether there is a balance between increased benefits and costs when determining the length of the extended warranty and the free replacement service. The empirical results indicate that remanufacturers can gain more profit with the free replacement service mode as opposed to the extended warranty service mode. This study provides practical implications by developing two innovative service modes that can be implemented by remanufacturers. The study also theoretically contributes to the field of study with the development of mathematical models to evaluate the financial benefits that take into consideration the different types of customer demands as well as other innovative service modes among remanufacturers and manufacturers.