Operational and financing decisions of a contract manufacturer under remanufacturing authorization strategy

Abstract

In recent years, the remanufacturing authorization strategy has widely drawn the attention of practitioners to solve the contradictions and conflicts between contract manufacturers (CMs) and original equipment manufacturers (OEMs). However, few studies about authorization remanufacturing consider that the CM is restricted by the limited initial capital. To fill this gap, we build a supply chain with a capital‐constrained CM and an OEM, where the CM can choose the bank financing or the OEM financing. Our results show that when the wholesale prices are exogenous, the CM will choose the OEM financing strategy if the bank's interest rate is in a relatively low or high range. Conversely, the OEM will not offer financing to the CM under the endogenous wholesale prices. Furthermore, it is interesting to find that the authorization fee under the bank financing is always higher than that under the OEM financing.