Decision making in remanufacturing: The role of volume uncertainty

About a month ago, I began analyzing the decision making variables and the environment in remanufacturing industry. In a January post, I talked about the importance of strategic assets. Today, I will continue the series with uncertainty. I personally see two kinds of uncertainty in a remanufacturing environment. First and foremost is the volume uncertainty.

We can broadly define volume uncertainty in remanufacturing as the inability to predict the amount of cores returned from the market. While the degree of uncertainty depends on the industry (think about capital goods reman vs. consumer goods reman), in general several consequences may emerge in a high uncertainty environment:

Let's talk about an OEM outsourcing its remanufacturing. Uncertainty urges the OEM to continually update the contracts and causes soaring coordination and renegotiation costs. On the other hand, suppliers can experience high production costs and excess capacity, and OEM can experience stock-outs or excess inventory. I am not going to enumerate all alternatives, but look at this company; there is high uncertainty, coordination (and also operational)costs are high for both parties, both parties are in fact miserable! So in fact, OEM should have owned the product acquisition channel to coordinate return of products more effectively and decrease the costs. As the uncertainty increases the frequency of updating and renegotiating increases and firm seek other means for coordinating these activities in a cost-minimizing manner.

The volume uncertainty has complicating role in remanufacturing times, quality, quantity and material planning. However, don't forget that it is a controllabe decision variable. For instance, Xerox provides lease option to its customers to reduce the uncertainty in copier collection. Moreover, to further reduce uncertainty Xerox Europe provides return services for products they sell or lease and have an approximate return rate of 65%.

Soon, the role of technological uncertainty...