EXPRESS: Managing Product-reusability under Supply Disruptions

We model and analyze product reusability, executed through refurbishment, amidst potential supply disruptions. Consumers can trade in used units, which can later be refurbished and sold. Using a three-period model, we determine the optimal degree of product reusability, trade-in and refurbishment policies, trade-in fee, and the prices of new and refurbished units chosen by the firm. Our analysis provides a useful framework to understand the interaction between a firm's choice of product reusability and the possibility of supply disruptions. In this context, our main findings are as follows. First, we establish that the firm adopts a threshold refurbishment policy: it refrains from refurbishing when reusability is low, increases refurbishment as reusability rises, and refurbishes all trade-ins when reusability is sufficiently high. Additionally, when consumers' value for used units is high and the risk of supply disruption is also high, the firm builds a safety stock through trade-ins to hedge against supply disruptions. However, the firm does not refurbish in the absence of disruption if the product reusability is not sufficiently high. Second, we find that it is beneficial to increase product reusability as the risk of supply disruption rises, but only up to a certain threshold. Beyond this threshold it is more advantageous for the firm to reduce reusability to save on design costs to be profitable. This is contrary to popular belief. Similarly, numerical examples reveal that, due to tight margins, the firm reduces reusability when the production cost is high. Finally, we demonstrate the firm shares the benefits of higher product reusability with its consumers through higher trade-in fees and lower refurbished unit prices. This results in a “Pareto-efficient” win for the firm, its trade-in customers, and purchasers of refurbished units. Our analysis offers insights for product designers on how supply disruption influences reusability choices in products.