View from Academia — Consumer Electronics Returns: Refurbish, or Dismantle for Parts?
By Mark Ferguson, Guangzhi Shang, and Michael Galbreth ,
When products are returned after a significant period of use, the best disposition decision is not always clear. This is especially true in the electronics industry, with its highly variable product life cycles, active markets for remanufactured items, and need for spare parts to make service repairs. In such a dynamic environment, as firms receive returned items it is often far from obvious whether the expense is justified to remanufacture a particular item for potential resale, as opposed to dismantling and placing it into inventory as a source of spare parts. Both options involve risk – unsold remanufactured items represent a wasted investment in the remanufacturing process, while the future need for the parts from dismantled items is often highly uncertain.
To address this important issue, in their paper published in Decision Sciences, Professors Ferguson, Fleischmann, and Souza develop a stochastic optimization model motivated by their observations within IBM’s asset recovery business. Their modeling approach enables them to capture the multi-period uncertainties inherent in the dispositioning of returned electronic items, and they provide several actionable insights. For example, they show that firms should resist the temptation to focus exclusively on the potential for high margins from remanufacturing. Instead, including the option to dismantle for spare parts can lead to substantial profit increases over a wide range of model parameters. Although their model is quite complex, they also include a simplified version that is very easy to implement and provides solutions that are only marginally inferior to those obtained by the full stochastic optimization model. Firms in the electronics industry can leverage these powerful tools to improve their decision making regarding returned items.
The above is a summary and commentary based on: Fergusun, M., Fleischmann, M., and Souza, G. (2011). A Profit-Maximizing Approach to Disposition Decisions for Product Returns. Decision Sciences, 42(3), 773-798.
Mark Ferguson, Guangzhi Shang, and Michael Galbreth Mark Ferguson (U of South Carolina), Michael Galbreth (U of Tennessee), Guangzhi Shang (Florida State U)