Should OEMs Outsource Remanufacturing to Retailers?

Abstract

In recent times, sustainability has become more important for businesses. Accordingly, product remanufacturing has emerged as an interesting topic, as it is generally considered as a profitable and environmentally friendly end-of-use management option for several products. While extant literature on remanufacturing has comprehensively studied the topic of outsourcing, it has failed to recognize that retailers also have the flexibility to engage in remanufacturing. However, in recent years, several brand name retailers have established remanufacturing operations. The following question arises: Should original equipment manufacturers (OEMs) outsource their remanufacturing operations to their retailers? To answer this question, two models are developed in which an OEM interacts with an independent retailer on remanufacturing operations with the option to either remanufacture all products in-house (Model M) or outsource remanufacturing to their retailer (Model R). The result shows that although model M potentially facilitates greater economic, social, and environmental sustainability, it has costs for the retailer. Finally, a revenue-sharing contract is proposed to achieve a “win-win-win” outcome that has economic, social, and environmental benefits for all parties.