SmartCycle: Services and concepts for resource-efficient production

Everyone is talking about environmental and climate protection today. At the same time, people's growing needs must be satisfied - and at an economically justifiable cost. One component is the processing and recycling of used products in order to save valuable primary raw materials.

Remanufacturing

In recent years, questions of resource security and efficiency have become increasingly important in business and politics. Like many other EU countries, Germany is dependent on imports for important raw materials. For a long time this problem was discussed only with regard to classic raw materials and energy sources (metals, oil, gas, etc.), which are produced in large quantities worldwide. Now rare raw materials for information and communication technology products are currently increasingly the focus of public interest. In particular, a strong increase in demand for these raw materials is assumed due to the fact that these products typically have a service life of only a few years and that there is a widespread lack of suitable recycling systems.

A solution approach here is so-called remanufacturing in connection with closed-loop supply chains, which is already carried out to varying degrees on a large number of products. The spectrum ranges from capital goods such as military weapon systems to consumer goods such as ink cartridges, toner cartridges and smartphones. In the implementation of remanufacturing - which, in contrast to well-known recycling, does not only preserve the raw materials contained in a product but also a large part of the value added through reprocessing - the relationship between manufacturer, retailer and end customer is of particular importance.

In many cases, remanufacturing is only possible through the combination with services. One example is Pay-TV decoders, which are provided to the customer as part of a subscription and also have to be returned. On the one hand, the return of old products is guaranteed. On the other hand, customer acceptance is also significantly higher than with the purchase of products, since the focus here is not on owning the decoder but on "watching TV".

In the past, manufacturers mainly focused on the distribution and pricing of new products. But in the context of remanufacturing they are faced with numerous new questions. For example, return processes must be designed and service models must be examined. The manufacturer must also take into account the effects on the new product offered simultaneously; for example, on the one hand there is the threat of competition, but on the other hand there are also additional opportunities to segment the market.

Literature

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  • Gönsch, J.; Dörmann, N.: On the Influence of Collection Cost on Reverse Channel Configuration. In: Journal of Business Economics, Vol 91 (2021), p. 179-213. doi: DOI https://doi.org/10.1007/s11573-020-00995-x PDF Full text Citation Details

    This paper revisits the impact of collection cost on a manufacturer’s optimal reverse channel choice. A manufacturer who remanufactures his own products has the choice between managing collection of used products himself, let the retailer manage collection or involve a third party company to manage collection. In particular, we consider a convex collection cost function depending on the collection rate. Contrary to previous literature, we show that the manufacturer always prefers retailer-managed collection, independent of collection cost. The retailer will always choose a positive collection rate. If collection cost is above a certain threshold, not all used products will be collected and the manufacturer (almost) collects all channel profits. Third party-managed collection is always dominated. In extensions, we also consider a restriction to equilibria and a minimum collection rate, which may be imposed by regulation. Both extensions may change the reverse channel choice to manufacturer-managed. Moreover, we see that it may be impossible for regulation to increase collection because the profit-maximizing collection rate may already be the highest economically viable one.

  • Gönsch, J.: A Note on a Model to Evaluate Acquisition Price and Quantity of Used Products for Remanufacturing. In: International Journal of Production Economics, Vol 169 (2015), p. 277-284. PDF Citation Details

    Pokharel and Liang [2012. A model to evaluate acquisition price and quantity of used products for remanufacturing. Int. J. Prod. Econ. 138, 170–176] considered a consolidation center that buys used products of different quality levels and sells them together with spare parts to a remanufacturer. The consolidation center׳s decision problem is to determine the acquisition price to offer for used products and the quantities of spare parts to buy. In this paper, comments on their work are given. It is shown that following Pokharel and Liang׳s original assumptions, the problem has a trivial solution. We then consider an alternative assumption where supply is uniform and depends on the acquisition price. For this setting, an efficient solution algorithm and numerical examples are provided. In a second model, additional assumptions are relaxed, allowing the consolidation center more flexibility. As expected, this further decreases cost.

  • Gönsch, J.: Buying Used Products for Remanufacturing: Negotiating or Posted Pricing. In: Journal of Business Economics (Zeitschrift für Betriebswirtschaft), Vol 84 (2014) No 5, p. 715-747. doi:https://doi.org/10.1007/s11573-014-0729-1 PDF Citation Details

    Product reclamation is a critical process in remanufacturing. It is generally assumed in the literature that customers simply want to get rid of their used products without expecting any compensation for them. Some authors have only recently started looking into firms that offer a posted (fixed) price for them. Following recent reports suggesting that customers are increasingly open to bargaining, we compare using a posted price and bargaining to obtain used products. In our analysis, we consider an original manufacturer acting as a monopolist as well as a manufacturer and an independent remanufacturer acting in a duopoly. We analytically show that bargaining is always beneficial to the monopoly manufacturer. In the duopoly case, we distinguish a Cournot competition and a market with the manufacturer as Stackelberg leader. The results of a numerical study show that both firms will use posted pricing in the Cournot competition, especially if bargaining is not costless. By contrast, the remanufacturer can significantly increase his profit by using negotiations if he is the Stackelberg follower.