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Remanufacturing decisions and implications under material cost uncertainty

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  • Wenbo Shi
  • K. Jo Min

Abstract

In this paper, for a firm of a single product, we construct and analyse how economically rational decisions on remanufacturing are made from a real options perspective under material cost uncertainty. Specifically, under the assumption that the material cost follows a Geometric Brownian Motion process, we derive the optimal condition (i.e. material cost threshold) to implement a remanufacturing system. Further analysis, analytically and/or numerically, yields numerous managerial insights and policy implications. For example, as the material cost becomes more uncertain, economically rational decision-makers will defer the implementation of the remanufacturing system. Furthermore, we also demonstrate that a product unit-based subsidy is more effective than a lump sum remanufacturing system implementation subsidy if our goal is to encourage a longer operational period of the remanufacturing system.

Suggested Citation

  • Wenbo Shi & K. Jo Min, 2015. "Remanufacturing decisions and implications under material cost uncertainty," International Journal of Production Research, Taylor & Francis Journals, vol. 53(21), pages 6421-6435, November.
  • Handle: RePEc:taf:tprsxx:v:53:y:2015:i:21:p:6421-6435
    DOI: 10.1080/00207543.2014.932933
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    Cited by:

    1. Li, Zhimin & Pan, Yanchun & Yang, Wen & Ma, Jianhua & Zhou, Ming, 2021. "Effects of government subsidies on green technology investment and green marketing coordination of supply chain under the cap-and-trade mechanism," Energy Economics, Elsevier, vol. 101(C).
    2. Yan Xu & Yan Tian & Chuan Pang & Huajun Tang, 2024. "Manufacturer vs. Retailer: A Comparative Analysis of Different Government Subsidy Strategies in a Dual-Channel Supply Chain Considering Green Quality and Channel Preferences," Mathematics, MDPI, vol. 12(10), pages 1-28, May.
    3. Lingzhi Shao & Qianwen Liu, 2022. "Decision-Making and the Contract of the Complementary Product Supply Chain Considering Consumers’ Environmental Awareness and Government Green Subsidies," IJERPH, MDPI, vol. 19(5), pages 1-27, March.
    4. Fangfang Guo & Tao Zhang & Xiuquan Huang & Yaoguang Zhong, 2023. "Government Subsidy Strategies Considering Greenness on Agricultural Product E-Commerce Supply Chain," Mathematics, MDPI, vol. 11(7), pages 1-26, March.
    5. Fan, Jing-Li & Wang, Jia-Xing & Zhang, Xian, 2020. "An innovative subsidy model for promoting the sharing of Electric Vehicles in China: A pricing decisions analysis," Energy, Elsevier, vol. 201(C).

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