Managing Product Reusability under Supply Disruptions

We model and analyze product reusability (executed through either refurbishing or remanufacturing), in the presence of supply disruptions. By assuming that consumers could exchange their used units for new ones and firms can attract consumers to do so through an exchange fee, we develop a discrete-time stochastic model to determine the degree of product-reusability, price, and exchange fee in steady state. Our analysis of this model shows that increasing product's reusability through better product design is beneficial to a certain extent when the probability of supply disruption increases. However, increasing reusability further, when the disruption probability is high, could hurt a firm's profit due to increasing design costs. We further show that, when consumers are more likely to exchange used units, increasing product-reusability is beneficial only when the price is high. Next, we discuss how a manufacturer should set the exchange fee to entice consumers to exchange their old units and set the discounted price for refurbished units that it sells in the market. We also show that increasing product-reusability need not be always beneficial even when manufacturer can set its product's price. Hence, a firms needs to carefully choose the right level of product-reusability to maximize manufacturer's profits. Finally, we compare product refurbishing and remanufacturing and observe that refurbishing could be more viable than remanufacturing when supply disruption is less likely, because of the additional expenditure that remanufacturing incurs when compared to refurbishing