Pricing and Warranty Level Decisions for New and Remanufactured Short Life-Cycle Products

Gan Shu San, I Nyoman Pujawan




Abstract


Remanufacturing has become more prominent as a recovery process to mitigate the massive disposal of short life-cycle product at its end-of-use. However, remanufactured product is often perceived to be inferior to new product, and it has lower value in consumer’s willingness to pay. To increase the perceived quality of the remanufactured product, manufacturer offers a warranty, since one of the three roles possessed in warranty is being a signal to product reliability. This paper studies the pricing decisions and warranty level decision for new and remanufactured products in a closed-loop supply chain consists of a manufacturer and a retailer. The optimization modeling is performed under Stackelberg game with manufacturer as the leader. We found that higher expansion effectiveness coefficient would increase the supply chain profit. Also, there is an interval of demand’s speed of change, where the total profit would be at its highest. The optimum warranty level can be achieved regardless the initial warranty level set at the beginning of retailer’s optimization. Furthermore, the remanufactured product’s wholesale and retail prices are influenced by the expansion effectiveness coefficient.


Keywords


pricing; remanufacturing; warranty; short life-cycle product

References


Souza, G.C., Remanufacturing in Closed-Loop Supply Chains, Production and Inventory Management Journal, 45(1), 2009, pp.56–66.

Agrawal, V.V., Atasu, A. & van Ittersum, K., Remanufacturing, Third-Party Competition, and Consumers’ Perceived Value of New Products. Social Science Research Network, 2012.

Balachander, S., Warranty signaling and reputation, Management Science, 47(9), 2001, pp.1282-1289.

Gal-Or, E., Warranties as a signal of quality, Canadian Journal of Economics, 1989, pp.50-61.

Packard, V., The Waste Makers, B. McKibben, ed., Ig Publishing, 2011.

Hsueh, C., An inventory control model with consideration of remanufacturing and product life cycle, International Journal of Production Economics, 133(2), 2011, pp.645–652.

Lebreton, B., Tuma, A., A quantitative approach to assessing the profitability of car and truck tire remanufacturing, International Journal of Production Economics, 104(2), 2006, pp.639–652.

Lund, R.T., Hauser, W.M., Remanufacturing – An American Perspective, in 5th International Conference on Responsive Manufacturing - Green Manufacturing (ICRM 2010), 2010, pp.1–6.

Gray, C., and Charter, M., Remanufacturing and Product Design, International Journal of Product Development, 6(3–4), 2008, pp.375–392.

Gan, S.S., Pujawan, I.N., Suparno, Remanufacturing of short life-cycle products, Operations and Supply Chain Management, 7(1), 2014, pp.13-22.

Atasu, A., Guide, V.D.R.J., van Wassenhove, L.N., So what if remanufacturing cannibalizes my new product sales?, California Management Review, 52(2), 2010, pp.56–76.

Souza, G.C., Closed‐Loop Supply Chains: A Critical Review, and Future Researc, Decision Sciences, 44(1), 2013, pp.7-38. doi:10.1111/j.1540-5915.2012.00394.x

Atasu, A., Sarvary, M., van Wassenhove, L.N., Remanufacturing as a marketing strategy, Management Science, 54(10), 2008, pp.1731–1746.

Ferrer, G., Swaminathan, J.M., Managing new and differentiated remanufactured products, European Journal of Operational Research, 203(2), 2010, pp.370-379.

Ovchinnikov, A., Revenue and cost management for remanufactured products, Production and Operations Management, 20(6), 2011, pp.824-840.

Chen, J.M. and Chang, C.I., Dynamic pricing for new and remanufactured products in a closed-loop supply chain, International Journal of Production Economics, 146(1), 2013, pp.153-160.

Wu, C.H., Product-design and pricing strategies with remanufacturing, European Journal of Operational Research, 222(2), 2012, pp.204-215.

Wu, C.H., Price and service competition between new and remanufactured products in a two-echelon supply chain, International Journal of Production Economics, 140(1), 2012, pp.496–507.

Gan, S.S., Pujawan, I.N., Suparno, and Widodo, B., Pricing decision model for new and remanufactured short-life cycle products with time-dependent demand, Operations Research Perspectives, 2, 2015, pp.1-12., doi:10.1016/j.orp.2014.11.001.

Gan, S.S., Pujawan, I.N., Suparno, and Widodo, B., Pricing decision for new and remanufactured products in a closed-loop supply chain with separate sales-channel, International Journal of Production Economics, 2016, (article in press) doi: 10.1016/j.ijpe.2016.08.016.

Wang, Y., Hazen, B.T., Consumer product knowledge and intention to purchase remanufactured products, International Journal of Production Economics, 181, 2016, pp.460-469.

Hazen, B.T., Boone, C. A., Wang, Y., Khor, K.S., Perceived quality of remanufactured products: construct and measure development, Journal of Cleaner Production, 142, 2017, pp.716-726, doi:10.1016/j.jclepro.2016.05.099.

Heal, G., Guarantees and risk-sharing, The Review of Economic Studies, 1977, pp. 549-560.

Guide, V.D.R.J. & Li, J., The Potential for Cannibalization of New Products Sales by Remanufactured Products, Decision Sciences, 41(3), 2010, pp.547-572.

Subramanian, R., Subramanyam, R., Key Factors in the Market for Remanufactured Products, Manufacturing and Service Operations Management, 2011, pp.1-31.

Wang, K.-H., Tung, C.-T., Construction of a model towards EOQ and pricing strategy for gradually obsolescent products, Applied Mathematics and Computing, 217(16), 2011, pp.6926–6933.

Liao, B-f., Li, B-y., and Cheng, J-s., A warranty model for remanufactured products, Journal of Industrial and Production Engineering, 32(8), 2015, pp.551-558, doi: 10.1080/21681015.2015.1090490.

Gao, J., Han, H., Hou, L. Wang, H., Pricing and effort decisions in a closed-loop supply chain under different channel power structures, Journal of Cleaner Production, 112, 2016, pp.2043-2057.

Zhu, Q., Li, H., Zhao, S., Lun, V., Redesign of service modes for remanufactured products and its financial benefits, International Journal of Production Economics, 171, 2016, pp.231-240.


Full Text: PDF

Instructions for Preparing Papers for JTI.docx
Panduan untuk Menulis di JTI.docx

The Journal is published by The Institute of Research & Community Outreach - Petra Christian University. It available online supported by Directorate General of Higher Education - Ministry of National Education - Republic of Indonesia.

©All right reserved 2016.Jurnal Teknik Industri, ISSN: 1411-2485, e-ISSN: 2087-7439

shopify traffic stats
View My Stats




Copyright © Research Center Web-Dev Team