Impact of remanufacturing on market cannibalization and profitability: A simulation study

Date
2011
Authors
Guleryuz, Burcu
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Abstract

Design of Experiment (DOE) techniques are utilized to investigate the impact of remanufacturing on the total profit and the market cannibalization, i.e., market share division among a manufacturer's new and remanufactured products. The total profit, the percentage of the total profit due to remanufactured products, and the number of lost consumers who choose not to purchase the manufacturer's products are considered as performance metrics. A product life cycle including manufacturing, remanufacturing, marketing, the first period, and the second period stages is modeled using the Arena® discrete event simulation software. Experimental results are analyzed via the Analysis of Variance (ANOVA) method using the SAS® statistical analysis software.

The impact of remanufacturing on the total profit and the market cannibalization for a monopolist is analyzed in an infinite-horizon scenario. Two discrete event models are designed to investigate the effects of different factors. The first model is created to investigate the impact of consumer preferences and pricing regimes on the total profit, the number of lost consumers, and the percentage of the total profit due to remanufactured products. The market is divided into two segments; the primary segment and the green segment. The percentage of the green segment is assumed to be one of the factors affecting the system. Another factor impacting the system is the pricing regime based on the competition of new and remanufactured products. In the second model, the effect of the product launch times is investigated in addition to two factors of the first model. The product launch times is modeled at four levels to investigate the effect of the launch times on the performance metrics.

The results reveal that the profitability of remanufacturing for a monopolist depends on the factors such as market segments, pricing strategies and product launch times of the manufacturer as well as their interactions. Successful combinations of those factors that lead to a profitable remanufacturing strategy are identified. This provides manufacturers with a strategic tool that might be utilized to obtain profit and as well as create a green image. On the other hand, no-remanufacturing scenario might lower profits, cause consumer losses, increase the profit margins of competitors, and weaken the company's green image.

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Mechanical Engineering