The optimal remanufacturing strategy, returned quality choice and independent remanufacturers’ advantage for tackling extreme weather

Abstract

As global warming is associated with frequent extreme weather, it is essential for the industry to adopt environment-friendly production to reduce carbon emissions, e.g., remanufacturing. Due to the avoidance of patent disputes and the lack of remanufacturing experience, many original equipment manufacturers (OEMs) focus on core competencies of the new product and authorize the remanufacturing to independent remanufacturers (IRs) with the quality advantage. We study the choice of the average returned quality and remanufacturing strategic problems under two remanufacturing options (in-house vs. authorized remanufacturing). For authorized remanufacturing, we consider two types of supply chain leadership (OEM-Stackelberg vs. IR-Stackelberg). We find that authorized remanufacturing under IR-Stackelberg is an inferior strategy for the OEM when different leadership structures exist in the market. Interestingly, when the coefficient of the channel cost is low, this strategy will hurt the interest of the IR even if it is a leader. In addition, our results show that the quality advantage of the IR is the key factor for the average returned quality and remanufacturing strategic choice. If the quality advantage is low, the OEM will choose the in-house option; otherwise, the authorized remanufacturing under OEM-Stackelberg is favored. The optimal remanufacturing strategy may not always return the highest average quality, especially in the moderate quality advantage. We further investigate the impact of the optimal remanufacturing strategy on the environment from non-productive and productive perspectives. When the coefficient of the channel cost is low, the cost of the new product and quality advantage are high, the triple optimizations (i.e., OEM's profit, IR's profit, and environment) can be achieved for tackling extreme weather.