Impact of product-design strategies on the operations of a closed-loop supply chain

Abstract

This study investigates product design and its impact on the operations of a two-echelon closed-loop supply chain (CLSC). Research findings reveal that remanufacturing does not necessarily enhance the profitability of the supplier or the manufacturer, but adjusting product-design strategies helps to curb loss if profitability suffers. An environmental impact analysis identifies an interval for the base unit remanufacturing cost, within which remanufacturing is beneficial. We then obtain the condition under which the environmental impact can be mitigated by product design. These results shed insights for supply chain managers in their operational decisions and policy-makers in properly regulating remanufacturing activities.Keywords: Product-design strategy; Closed-loop supply chain; Remanufacturing; Environmental impact speaking, remanufacturing-oriented product design interacts with other decisions such as collection (Atasu and Souza, 2013;Galbreth et al., 2013;Subramanian et al., 2013), remanufacturing (Reimann et al., 2019), and pricing strategies (Örsdemir et al., 2014;Wu, 2013). Existing studies show that a supply chain member, such as an OEM, may change its product-design strategy to deter its competitor from remanufacturing (Subramanian et al., 2013) or to attain win-win results for both parties (Wu, 2013). In addition, Gu et al. (2015) reveal that an OEM can adjust its product-design strategy to maximize its profits if it engages in remanufacturing. Therefore, product design proves to be an effective tool for a supply chain member to maximize its profit in a remanufacturing context.The aforesaid studies assume that an integrated manufacturer is responsible for the design and production of a single product. But in reality, many products are designed and produced by a non-integrated manufacturer and its suppliers. For instance, PC manufacturers purchase CPUs from Intel or AMD and memory chips from other external chipmakers to make their final products. Most Chinese automakers rely on external suppliers for high-quality key components such as engines, gearboxes, and tires. It is apparent that the success of these manufacturers depends on their key component suppliers.Empirical evidence has revealed that an increasing number of OEMs are interested in motivating their suppliers to participate in their product development (Yan et al., 2018). In most cases, if a manufacturer engages in both producing new product and remanufacturing, the remanufactured product typically erodes demand for new final products, leading to reduced demand for components. For instance, as an engine producer, Cummins produces both new and remanufactured engines (here, the engine is a final product of Cummins). Its remanufactured engines are used to replace broken ones in faulty vehicles (Shi et al, 2016).It is apparent that Cummins' remanufactured engines compete with its new products, thereby reducing demand for engine parts such as bent axles. Another example is that automatic gearboxes used in many domestic automakers in China are boug...

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