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Sustainability 2017, 9(4), 516; doi:10.3390/su9040516

Optimal Remanufacturing Certification Contracts in the Electrical and Electronic Industry

1
Academy of Chinese Energy Strategy, China University of Petroleum, Beijing 102200, China
2
Lubar School of Business, University of Wisconsin-Milwaukee, Milwaukee, WI 53211, USA
3
School of Foreign Languages, China University of Petroleum, Beijing 102200, China
4
College of Business Administration & Public Policy, California State University Dominguez Hills, Carson, CA 90747, USA
*
Author to whom correspondence should be addressed.
Academic Editors: Xiang Li, Jian Zhou, Hua Ke and Xiangfeng Yang
Received: 6 February 2017 / Revised: 17 March 2017 / Accepted: 24 March 2017 / Published: 30 March 2017
View Full-Text   |   Download PDF [708 KB, uploaded 30 March 2017]   |  

Abstract

While remanufacturing is highly encouraged worldwide, some original equipment manufacturers (OEMs) in the electrical and electronics industry are still not willing to embrace remanufacturing, for fear of expensive investment or the cannibalization of existing products. Meanwhile, third-party remanufacturers’ (TPRs) remanufactured products are developing quickly. Due to quality reasons, consumers usually have a higher preference for OEM-certified remanufactured products than uncertified ones. As such, remanufacturing certification has become a strategy that OEMs can use to benefit from product remanufacturing. Our paper focuses on the remanufacturing certification contract between an OEM and a TPR. Once certified, the TPR makes payments to the OEM. These payment terms will affect their enthusiasm for participating in remanufacturing certification. By establishing game models among an OEM, a certified TPR, and an uncertified TPR, our paper explores three certification contracts, namely, the lump-sum payment, profit-sharing payment, and piece-rate payment. We identify the conditions for the OEM and certified TPR to reach a win-win outcome. Our results show that when TPRs have a high profit margin and there is no significant difference in consumers’ preferences between certified and non-certified remanufacturing channels, the profit-sharing payment contract yields the highest profit; otherwise, the piece-rate payment contract is best for the OEM. View Full-Text
Keywords: electrical and electronics industry; remanufacturing; certification; third-party remanufacturer; lump-sum payment contract; profit-sharing payment contract; piece-rate payment contract electrical and electronics industry; remanufacturing; certification; third-party remanufacturer; lump-sum payment contract; profit-sharing payment contract; piece-rate payment contract
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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Liu, H.; Yue, X.; Ding, H.; Leong, G.K. Optimal Remanufacturing Certification Contracts in the Electrical and Electronic Industry. Sustainability 2017, 9, 516.

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