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We discuss the optimal raw material acquisition strategy for a third party remanufacturer (3PR). We specifically investigate whether a 3PR should acquire used products or cores in bulk with uncertain quality levels, or in sorted grades with known quality levels; and whether to acquire and remanufacture cores before the demand is realized (planned acquisition), or after the demand is realized (reactive acquisition), or on both occasions (sequential acquisition). When only sorted cores are acquired, we find that, (i) it is optimal to acquire cores in multiple grades to balance acquisition and remanufacturing costs; (ii) if reactive acquisition is possible, it reduces the assortment size (number of grades in which cores are acquired) and the total inventory acquired in the planned acquisition; and (iii) the optimal portfolio of grades to acquire and the optimal acquisition and remanufacturing quantities of these grades can be determined analytically. When bulk cores are acquired in addition to sorted cores, the property of reduction in assortment size of the planned acquisition is preserved. We also show that the 3PR should acquire only a fraction of the demand in planned acquisition, and leave the rest for reactive acquisition. This fraction changes during the lifecycle of a remanufactured product. Using a combination of empirical and realistic data from a smartphone remanufacturer we show that sequential acquisition increases expected profit by up to 8% and 27% over only planned and only reactive acquisitions respectively, and reduces the inventory acquired by up to 21% over only planned acquisition.

This paper analyzes the business‐to‐business transactions in which a supplier sells assortments of used products to third‐party remanufacturers. The supplier offers used products in different quality conditions, called grades. We model this buyer–supplier transaction as a Stackelberg game in which the buyer chooses his optimal purchase quantity of various grades, and the supplier chooses the optimal assortment and the prices of the grades in the assortment anticipating buyer’s behavior. We first develop an analytically tractable solution to the buyer’s and supplier’s problems. Subsequently, we show several structural properties of the optimal assortment offered by the supplier, including (i) the optimal prices set by the supplier are such that high quality grades have a higher profit margin for the buyer; and (ii) the grades in the optimal assortment constitute a convex hull of the remanufacturing and acquisition costs. We also extend the results to the case when the supplier’s acquisition costs are marginally increasing in the quantity acquired.

OEMs of capital‐intensive products are increasingly servicizing their business model, that is, they lease the product to the customer while selling the service. This has led to the forward and reverse flow of products and information between the OEMs and customers. The standard practices and processes of the traditional sell‐a‐product model do not apply to the servicizing business model. We draw upon our experience with two servicizing OEMs and highlight the inter‐functional coordination and development of new business processes needed for OEMs to successfully manage the transition from selling the product to selling the service. Specifically, we discuss the interconnected nature of the business strategy, product development, supply chain, and accounting and finance functions in managing a servicizing business model. Along with close coordination in the strategic dimensions, OEMs also need to make changes in their operational processes to manage the return flow of multiple usecycle products to profitably remanufacture them and re‐lease to customers. When operational changes are implemented correctly, the servicizing model also offers several benefits that are not present in the traditional sell‐a‐product business model.