The role of part failure rates asymmetry and spare part proprietariness on remanufacturing decision making

Abstract

Sourcing affordable replacement parts is a major issue in the secondary market. Independent remanufacturers (IRs) typically use two sources. They harvest collected products for useable spare parts and procure new spare parts. The first option is complicated by having products with specific parts showing high relative failure rates, e.g., a washing machine that, when collected for remanufacturing, almost always contains a defective PCB board. Thus harvesting for such PCB boards is a challenging option and arguably more complicated when the part failure rate asymmetry (PFRA) increases. The second option is potentially expensive when the failed parts are proprietary, i.e., sold by a monopolist manufacturer at a high price. In this paper, we examine both of those challenges. Using a stylized model and starting with a setting without proprietary parts, we observe that a high PFRA does not necessarily lower IR profitability but might increase both collection and remanufacturing. We extend our results to examine the impact of PFRA on remanufacturing decisions for products containing proprietary parts, and our results are structurally identical. Interestingly, an increase in the proprietary content of a product can benefit the IR in specific settings. Yet, proprietary parts always lead to less remanufacturing, while the collection may increase. For policymakers invested in promoting remanufacturing, our results show important trade-offs on the interplay between part proprietariness and the PFRA.