To License or Not to License Remanufacturing Business?

Many original equipment manufacturers (OEMs) face the choice of whether to license an independent remanufacturer (IR) to remanufacture their used products. In this paper, we develop closed-loop supply chain models with licensed and unlicensed remanufacturing operations to analyze the competition and cooperation between an OEM and an IR. The OEM sells new products and collects used products through trade-ins, while the IR intercepts the OEM’s cores to produce remanufactured products and sell them in the same market. We derive optimal decisions for each of the two types of firms in licensed and unlicensed remanufacturing scenarios and identify conditions under which the OEM and the IR would be most likely to cooperate with each other in implementing remanufacturing. The results show although it is beneficial for an OEM to license an IR to remanufacture its cores, it is not always necessary for an IR to accept OEM’s authorization. Moreover, we contrast the result for licensed remanufacturing scenario in the decentralized system with that in the centrally coordinated system to quantify potential inefficiency resulting from decentralization of decision making