Outsourcing or in-housing: remanufactured product warranty of independent remanufacturer

Abstract

Purpose

This study attempts to determine the optimal pricing and warranty strategies for remanufactured products offered by independent remanufacturers (IRs). Specifically, it takes into account price competition and warranty service competition between the original equipment manufacturer (OEM) and IR, ultimately providing recommendations on the selection of warranty service modes for IRs.

Design/methodology/approach

This study considers two warranty modes for IRs: in-housing and outsourcing. Based on game theory, this study identifies the conditions under which the warranty service for remanufactured product is outsourced to retailers in IR-remanufacturing mode. Furthermore, this study investigates how this strategic decision affects closed-loop supply chain (CLSC) operations by comparing the two modes in terms of profit, consumer surplus (CS), quantity and overall social welfare (SW).

Findings

Firstly, the provision strategy for IRs' warranty on remanufactured products depends mainly on the retailer’s warranty cost. If retailers have lower costs for warranties, IR opts to outsource the remanufactured product warranty to the retailer. Second, when retailers offer warranties at a lower cost, IRs prefer outsourcing remanufactured product warranty to retailers. In this way, it will maximize both the remanufacturer’s and retailer’s profits while achieving the optimal total profit for the entire supply chain. However, it’s not beneficial for the OEM. Third, the IR’s preference for warranty service provision strategy is influenced by customers’ acceptance of remanufactured product, customer sensitivity toward remanufactured product warranty and economies of scale in warranty service.

Practical implications

The findings offer operational insights into IR decision-making in selecting warranty service provision strategies for remanufactured products.

Originality/value

This study is among the first to examine warranty provision strategy for IRs in CLSC.