Remanufacturing authorization strategy for an original equipment manufacturer-contract manufacturer supply chain: Cooperation or competition?

Qin Zhou, Chao Meng*, Kum Fai Yuen*, Jiuh Biing Sheu

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

53 Citations (Scopus)

Abstract

Due to the supply chain globalization, technology-oriented original equipment manufacturers are focusing on their core competencies by outsourcing the production to contract manufacturers. Many contract manufacturers also engage in remanufacturing and provide high quality remanufactured products in the market posing competition to the new products. This paper considers a supply chain with an original equipment manufacturer and a contract manufacturer. The contract manufacturer produces new products for the original equipment manufacturer and may compete with the original equipment manufacturer by producing and selling remanufactured products. The original equipment manufacturer can determine whether to authorize the contract manufacturer's remanufacturing. This paper investigates the wholesale price and retail price decisions for the new product and the conditions under which an authorization agreement can be reached between the two parties. In the analysis, two wholesale price settings are considered, the exogenous wholesale and endogenous wholesale price settings. In addition, three authorization decision bargaining scenarios are examined, including the original equipment manufacturer determining the authorization fee, the contract manufacturer determining the authorization fee, and two parties negotiating the authorization fee, to analyze the authorization cooperation outcomes via the generalized Nash bargaining framework. The results show that when the contract manufacturer determines the authorization fee, an authorization cooperation can never be reached whether in the exogenous or endogenous wholesale price setting. The original equipment manufacturer is more likely to set an authorization fee that leads to an authorization cooperation between the original equipment manufacturer and the contract manufacturer, especially when the contract manufacturer collects and remanufactures all the used products. Multiple factors influencing authorization cooperation decision are investigated, including the exogenous and endogenous wholesale price, production cost of new and remanufactured products, bargaining power of the two parties, and consumers' preference for remanufactured products.

Original languageEnglish
Article number108238
JournalInternational Journal of Production Economics
Volume240
DOIs
Publication statusPublished - Oct 2021
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2021

ASJC Scopus Subject Areas

  • General Business,Management and Accounting
  • Economics and Econometrics
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering

Keywords

  • Competitive CM
  • Contract manufacturing
  • Nash bargaining game
  • Remanufacturing authorization

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