Optimal Line Design of New and Remanufactured Products: A Model for Maximum Profit and Market Share with Environmental Consideration

Abstract

For original equipment manufacturers (OEMs), producing a line of new and remanufactured products can be an effective strategy for improving the sustainability of their business. The potential cannibalization of new product sales and the technological obsolescence of used products, however, can create barriers for OEMs to embrace remanufacturing. In order to address these challenges in OEM remanufacturing, this paper proposes a mixed-integer programming model for the optimal line design of new and remanufactured products. Aiming at two objectives, i.e., maximizing the total profit and maximizing the total market share, the model simultaneously optimizes a line of new and remanufactured products in terms of their (1) design specifications (including an upgrade plan for the remanufactured product), (2) selling prices, and (3) production quantities and the detailed production plan. With the simultaneous optimization, the model suggests an optimal way of differentiating the new and remanufactured products in order to overcome the cannibalization and obsolescence effects and to maximize the total profit and/or market share. The model also accounts for environmental impact, stipulating that the total environmental impact of manufacturing remains under a certain limit. To demonstrate the applicability and effectiveness of the model, a case study is presented using the example of a desktop computer.