In recent decades, remanufacturing is perceived to be an environmentally friendly option due to the reduced consumption of materials, energy etc. It should be noted that whether the remanufacturing operations are undertaken by the original equipment manufacturers (OEMs) or outsourced to the remanufacturers, given the size and the growth of remanufactured products, many OEMs intend to fend off the potential cannibalization of new products sales through differentiating their quality levels from those of remanufactured ones by launching upgraded versions. To understand whether and how the product upgrading strategy impacts on optimal outcomes in the context of the remanufacturing operations undertaken by OEMs or third-party remanufacturers (TPRs), in this paper, we develop two models that highlight the OEM’s product upgrading strategy under the scenarios where (1) the OEM owns its remanufacturing operations in-house (Model O) or (2) remanufacturing operations are undertaken by a TPR (Model T). Among other results, we find that, from an economic performance perspective, it is more beneficial for the OEM to perform remanufacturing operations in-house; however, from an environmental sustainability perspective, such behavior is not always good for our environment. In particular, when the level of product upgrading is pronounced, the remanufacturing operations undertaken by the OEM are always detrimental to our environment, due to indulging in remanufacturing, as seen in Model O.

Traditional wisdom suggests that the interchangeable design in process system engineering, such as modularity or commonality design, can lower the manufacturing cost and act as a revenue driver. Moreover, the interchangeable design will be efficient in both assembling for new production and disassembling for remanufacturing. As such, interchangeable design confronted remanufacturing processing often involves a balance of revenue from cost drivers and cannibalization effects from remanufacturing. Therefore, this paper studies how the original equipment manufacturers’ (OEMs’) interchangeable design impacts the remanufacturing decisions, as well as the economy and environment. Specifically, we develop two theoretical models, in which an OEM makes a strategic choice relating to design interchangeability when the remanufacturing operations are undertaken by itself (Model O) or outsourced to third-party remanufacturers (Model T). This study finds that, although the optimal level of interchangeability related to the product design in Model T is lower than that in Model O, the optimal quantity of remanufactured products in the latter scenario is always higher. This suggests that remanufacturing outsourcing deters the OEM’s strategic choice on design interchangeability, which may be consistent with the fact that Lexmark makes its products less interchangeable to avoid remanufacturing from third-party remanufacturers (TPRs). Conversely, although the OEM is always less likely to outsource its remanufacturing operations to independent remanufacturers, remanufacturing outsourcing may be more beneficial for the environment, industry, and society. These key insights on the environmental groups or agencies suggest that remanufacturing outsourcing may be more beneficial for the environment, industry, and society and depends on the OEMs’ attitudes towards its profitability loss. Furthermore, to eliminate the above contrasting effects between the OEMs’ profitability and other issues, two possible remedies, including a revenue-sharing contract and subsidy-incentive mechanism, are provided to achieve a “win-win” situation.