Ravi Subramanian, Assistant Professor

Georgia Institute of Technology

Visit, Friday, February 4, 2011

Abstract

Firms often determine whether or not to make components common across products by focusing on the manufacturing and sales of new products only. However, component commonality decisions that ignore remanufacturing can adversely affect the profitability of the firm. In this paper, we analyze how remanufacturing – by either the OEM or a third party – could reverse the OEM’s commonality decision that is based on the manufacturing and sales of new products alone. Specifically, we determine conditions under which the OEM’s optimal decision on commonality may be reversed and illustrate how her profit can be higher if remanufacturing is taken into account ex ante. We also compare the likelihood of commonality decision reversals and associated profit impacts between the OEM and third party remanufacturing scenarios.