Optimizing two-dimensional renewable warranty policies for sensor embedded remanufactured products

Journal of Industrial Engineering and Management JIEM, 2017 – 10(2): 145-187 – Online ISSN: 2013-0953 – Print ISSN: 2013-8423 https://doi.org/10.3926/jiem.2187 Optimizing Two-Dimensional Renewable Warranty Policies for Sensor Embedded Remanufactured Products Ammar Alqahtani1 , Surendra M. Gupta2 King Abdulaziz University (Saudi Arabia) 1 Northeastern University (United States) 2 , Received: November 2016 Accepted: January 2017 Abstract: Purpose: Remanufactured products, in addition to being environment friendly, are popular with consumers because they can offer the latest technology with lower prices in comparison to brand new products. However, some consumers are hesitant to buy remanufactured products because they are skeptical about the quality of the remanufactured product and thus are unsure of the extent to which the product will render services when compared to a new product. A strategy that remanufacturers may employ to entice customers is to offer warranties on remanufactured products. To that end, this paper studies and scrutinizes the impact of offering renewing warranties on remanufactured products. Specifically, the paper suggests a methodology which simultaneously minimizes the cost incurred by the remanufacturers and maximizes the confidence of the consumers towards buying remanufacturing products. Design/methodology/approach: This study uses discrete-event simulation to optimize the implementation of a two-dimensional renewing warranty policy for remanufactured products. The implementation is illustrated using a specific product recovery system called the Advanced Remanufacturing-To-Order (ARTO) system. The experiments used in the study were designed using Taguchi’s Orthogonal Arrays to represent the entire domain of the recovery system so as to observe the system behavior under various experimental conditions. In order to determine the optimum strategy offered by the remanufacturer, various warranty and preventive maintenance -145- Journal of Industrial Engineering and Management – https://doi.org/10.3926/jiem.2187 scenarios were analyzed using pairwise t-tests along with one-way analysis of variance (ANOVA) and Tukey pairwise comparisons tests for every scenario. Findings: The proposed methodology is able to simultaneously minimize the cost incurred by the remanufacturer, optimize the warranty price and period, and optimize the preventive maintenance strategy resulting in increased consumer confidence. Originality/value: This is the first study that evaluates in a quantitative and comprehensive manner the potential benefits of offering warranties with preventive maintenance on remanufactured products. Keywords: reverse supply chain, preventive maintenance, renewable warranty policies, remanufacturing, sensor embedded products, extending product life-cycle 1. Introduction In current times, the exponential rise in technological development and the customers’ desire to repeatedly purchase newer device models and technological products is the impetus which culminates into diminished product life cycles and an upturn in their rate of disposal. As a result, landfill areas and the Earth’s natural resources start reaching a critical apex. Therefore, when a technological device reaches the end of its life and becomes essentially no longer useful or just antiquated, manufacturing firms repossess these same products that they had produced prior, in order to manage to meet the new regulations imposed upon them and to enlighten customers’ awareness of the pertinent environmental issues regarding this matter. The manufacturers of these technological devices construct specialized facilities specifically designed for the end-of-life (EOL) product recovery process in order to minimize the amount of mechanical waste sent to landfills. This is achieved by retrieving the mechanical materials, parts, and components from the end-of-life products (EOLPs) by way of the recycling, refurbishing, and remanufacturing processes. The economic benefits from such facilities make the process of product recovery more attractive. In product recovery, disassembly is the most vital operation because it allows for the extraction of the desired components, subassemblies and materials from EOL products. There are various ways to execute the process of disassembling EOL products. They can be effectuated at a single workstation, in a disassembly cell, or on a disassembly line. Although utilizing single workstations and disassembly cells are more flexible, the operation that produces the highest yield is the disassembly line, which is also the most efficient operation for automated disassembly (Gungor & Gupta, 2002). -146- Journal of Industrial Engineering and Management – https://doi.org/10.3926/jiem.2187 The first fundamental step in the processes of remanufacturing, recycling, and disposing of EOL products is the pertinent operation of product disassembly. Disassembly is the method of deconstructing an EOL product down to its core mechanical components by utilizing either non-destructive, semidestructive, or destructive techniques. The main and foremost intention of disassembling these EOL products is to support the foremost goal of recovery process which is to minimize the natural resource depletion. The cardinal quandary with the product recovery process is the uncertainty it poses, in regards to the components’ quality. This dilemma is due to the lack of information regarding the condition of the components prior to them being disassembled. The blatantly clear solution is to test each individual component subsequent to their disassembly. However, product disassembly puts a financial burden on remanufacturer’s profits, which, in turn, allays the profit margin of remanufacturing, which is requisite upon two factors: the monetary cost of conducting the appropriate and necessary testing of the entirety of the devices, and the sheer magnitude of obligatory time required to do so. What’s more, if the test reveals the component is dysfunctional, it is a sort of assault on the manufacturer upon the realization that the totality of time spent attempting to process the EOL device(s), along with the resources that were required to do so were a waste of resources which could have been otherwise, efficiently utilized. The quality of a remanufactured product induces hesitation for many people, in regards to its efficacy and reliability. Therefore, the consumers are unsure if remanufactured products will have the capacity to render the same expected performance as that of a new device. This uncertainty regarding a remanufactured product could lead the consumer to make a determination against its purchase. With such expansive consumer apprehension, remanufacturers often employ marketing strategies in attempts to provide affirmation about product durability. One stratagem that remanufacturers often employ to encourage customer security are product warranties (Murthy & Blischke, 2006). (...truncated)