Managing Product-reusability under Supply Disruptions

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Abstract

We analyze product-reusability (executed through refurbishing), in the presence of supply disruptions. In this setting, consumers could trade-in their used units and receive new ones, and firms can attract consumers to do so through a trade-in fee. We develop a discrete-time Markov-chain model to determine the degree of product-reusability, price-premium on refurbished units, and trade-in fee. We find that increasing product’s reusability through better product-design is beneficial as the likelihood of supply disruption increases to a certain extent. However, increasing reusability further, when the disruption probability is high, hurts a firm’s profit due to increased design costs and decreased revenues.

Authors

• Nishant K Verma, Indian Institute of Management Bangalore

• Prashant Chintapalli, Ivey Business School, Western University, London, ON

• Kumar Rajaram, UCLA Anderson School of Management, Los Angeles, CA United States