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Modeling competitive market of remanufactured products
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CIRP-1656; No. of Pages 4 CIRP Annals - Manufacturing Technology xxx (2017) xxx–xxx
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CIRP Annals - Manufacturing Technology jou rnal homep age : ht t p: // ees .e lse vi er . com /ci r p/ def a ult . asp
Modeling competitive market of remanufactured products Yasushi Umeda (1)a,*, Kazuma Ishizuka a, Mitsutaka Matsumoto b, Yusuke Kishita a a b
Department of Precision Engineering, Graduate School of Engineering, The University of Tokyo, Japan National Institute of Advanced Industrial Science and Technology, Japan
A R T I C L E I N F O
A B S T R A C T
Keywords: Lifecycle Simulation Remanufacturing
Although remanufacturing is effective for increasing resource efficiency, its market share is very small in some developing countries. For analyzing market conditions for remanufacturing, this paper proposes a market model to be incorporated in Life Cycle Simulation by employing polynomial logit model. This model successfully simulated market competition among new, remanufactured, and refurbished products. The results suggest the possibility of diffusion of remanufactured products if the circulating system is well established. Polynomial logit model is effective for discussing policy, life cycle design, and product design, since it can map customers’ preference to the attributes of products through the utility function. © 2017 Published by Elsevier Ltd on behalf of CIRP.
1. Introduction Remanufacturing is one of the most important life cycle options for increasing resource efficiency and realizing circular economy [1]. While photocopiers, automobile parts, and construction machinery in developed countries are good practices [2], remanufacturing in developing countries is struggling in the competition with new products and refurbished products, and cannot achieve good market shares. On one hand, it should be competitive to the quality of brand-new products and on the other hand it should be competitive to the price of refurbished products. In the CIRP community, remanufacturing has been studied enthusiastically. Duflou et al. [3] discussed the importance of disassembly in remanufacturing with indicating cases. Sutherland et al. [4,5] intensively study remanufacturing in terms of energy, environmental loads, and cost. Sakai and Takata [6] proposed reconfiguration management of remanufactured products by using Life Cycle Simulation. Wang et al. [7] proposed cloud-based remanufacturing platform. Widera and Seliger [8] discussed obstacles of remanufacturing business. Lieu et al. [9] mathematically evaluated optimal timing of remanufacturing. However, market competition of remanufactured products with other types of products has not been studied in this community. This paper focuses on remanufacturing in Southeast Asia. We executed some field studies in this area and found some difficulties of remanufacturing in achieving a certain market share under the competition with new products and other circulating products like refurbished products, reused products, second-hand products, etc. In order to diffuse remanufactured products, some conditions including price and quality comparing to competing products should be satisfied and/or changes of business models are needed. The goal of this research is to find out such conditions and business
* Corresponding author. E-mail address: [email protected] (Y. Umeda).
models and then to specify requirements for life cycle design of the products to be remanufactured. As the first step, this paper proposes a model to simulate the market competition among new, remanufactured, and other circulating products, in order to find out the above-mentioned conditions. For this purpose, we expand Life Cycle Simulation [10] by incorporating a market model. Life Cycle Simulation [10] is a method to simulate flows of products, parts, materials, energy, money, information and so on throughout a product life cycle by employing a discrete event simulation technique for supporting life cycle design. The rest of this paper is organized as follows. Section 2 summarizes our field studies in Southeast Asia and points out difficulties of remanufacturing. Section 3 describes the market model. Section 4 illustrates the life cycle model we developed and its simulation results. Section 5 discusses the simulation results. And, Section 6 concludes this paper.
2. Remanufacturing in Southeast Asia and its issues In this paper, we focus on markets in Southeast Asia and assume the following three kinds of products as representatives: New product: A new product is manufactured by an OEM (e.g., Xerox) with newly manufactured parts. The product is sold and used in a target market. And, a certain rate of end-of-life products is collected by the OEM. Remanufactured product: A remanufactured product is made by the OEM from the collected end-of-life new products with genuine spare parts in the target area. The ‘like new’ quality is guaranteed by the OEM. At its end-of-life, the product is no longer remanufactured as a product. Refurbished product: An independent refurbisher imports end-of-life new products from developed countries (e.g., U. S. A.) and refurbishes them with replica new parts made by third party manufacturers and reused parts. In general, its quality is inferior to new or remanufactured products and the life time is shorter than
http://dx.doi.org/10.1016/j.cirp.2017.04.098 0007-8506/© 2017 Published by Elsevier Ltd on behalf of CIRP.
Please cite this article in press as: Umeda Y, et al. Modeling competitive market of remanufactured products. CIRP Annals Manufacturing Technology (2017), http://dx.doi.org/10.1016/j.cirp.2017.04.098
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CIRP-1656; No. of Pages 4 Y. Umeda et al. / CIRP Annals - Manufacturing Technology xxx (2017) xxx–xxx
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them. At the end-of-life, the products are no longer refurbished as a product. This paper takes the position to promote remanufactured products in Southeast Asia. We here take Southeast Asia as a typical example of developing countries. Since the population and the consumption of goods increase in developing countries, ensuring resource efficiency in these countries is an urgent and important issue, which also leads to sustainable consumption and production in developing countries. We executed field studies in Singapore and Thailand, in which we made interviews to OEMs, remanufacturers, and refurbishers of photocopiers, construction machinery, and factory equipment. We found out cases that are impeding the promotion of remanufactured products as follows Not enough needs: Refurbished photocopiers sell better than remanufactured ones because of their cheaper prices. ‘Like-new’ quality of remanufactured photocopiers is excessive. Refurbished products are cheap, because the refurbishers do not use OEM’s genuine spare parts but use replica new parts. While this may reduce the quality of the products, the quality of such replica parts is increasing. On the other hand, large firms often employ product service systems (PSS). The firms do not care whether the photocopiers are brand-new or remanufactured as far as the contracted service level is kept. Then, PSS is a good target of supply of remanufactured photocopiers. supply of core: Supply of cores (i.e., end-of-life new products) is problematic. The customers or lease companies do not return endof-life products to OEMs. Since they do not have service contracts with OEMs, OEMs cannot grasp products to be discarded. Price destruction: In the Thai market, an OEM drastically reduced the price of new photocopiers. As a result, many refurbishers disappeared very quickly because the refurbished products lost the price competitiveness. The market of circulating products is very complicated and dynamic, and we are not sure to whom we shall support; OEMs, OEMs’ remanufacturing, refurbishers, or third party parts manufacturers. According to this field study, we can summarize the essential issues of remanufacturing as follows: 1. Market competition: The market competition among new and circulating products is very severe. There seems to be some implicit balance of price, quality, and durability. 2. Establishment of circulation: For expanding the share in the competitive market, the supply of cores is quite critical. 3. Business model: Quality assurance by PSS is a hopeful approach to expand the share of the circulating products. This paper focuses on the issues 1 and 2. For discussing conditions for diffusing remanufactured products, we simulate the market competition among three products by expanding Life Cycle Simulation [10]. This will be discussed in Section 3.
XT Pj ¼ eY j = j¼1 eY j
ð2Þ
The methodology [11] also provides a method to determine the weights of the attributes Ak. Namely, when the choice jn of each customer nð1 n NÞ are given where N is the number of the customers, the weights are determined so as to maximize the likelihood function L defined as Eq. (3). L¼
YN
ð3Þ
P n¼1 jn
4. Simulation We construct a life cycle model for simulating the market competition of remanufactured products against new and refurbished products. We here take a photocopier market in Thailand as a target case study. While the photocopier markets are shrinking in developed countries, the markets increase in developing countries [12]. Since photocopier is a typical circulating product, data on circulating products are available and reliable. We then focus on the photocopier market. Of course, the model is applicable to other products in other areas. 4.1. Simulation conditions The life cycles of the three products are modeled as described in Section 2. Fig. 1 depicts the life cycle model of these three products. In this figure, the process ‘Product Purchase’ implements the market model described in Section 3. As the reference scenario, we set the following conditions. Table 1 indicates attributes of the three types of products according to the interviews to local experts. For representing the life times, we modeled the disposal density function, denoting rate of disposal per time unit, as a Weibull distribution with shape parameter of 1.82 from the Reference [13] and scale parameters of 55.2 (months) (new product), 42.9 (remanufactured), and 31.8 (refurbished) so as to fit the life times in Table 1. The simulation covers 200 months from January 2002, since we obtained the market data in Thailand from 2002 [12]. We assumed that an OEM started to sell the remanufactured products from 2010. The simulation is divided into two phases; preparation phase (Phase I) between 2002 and 2009 and main phase (Phase II) from 2010. In the main phase, the remanufactured products are sold and the three types of products are purchased according to the market model. Since the remanufactured products are made from end-oflife new products, we should simulate the market state in 2010, which consists of new products of different ages and refurbished products of different ages. This is the simulation in Phase I; in this Parts
Products imported from, e. g., U.S.A.
Manufacturing
3. Market model
Refurbish
In this paper, we employ ‘polynomial logit model’ [11] as the market model, since this model can represent the situation where a customer selects a choice among multiple candidates and is a simple fundamental model. The model represents the utility of a product as a weighted sum of attributes and calculates the probability for choosing a product by applying a logistic function to the utility value. Namely, the model represents the utility Yj of a product j ð1 j T Þ for a customer as shown in Eq. (1), where T, M, Xjk , Ak ð1 k MÞ denote the number of candidates, the number of focused attributes of a product, the value of the attribute k of product j, and the weight of the attribute k for the customer, respectively. Moreover, the probability Pj for choosing a product j is defined as shown in Eq. (2). Yj ¼
XM
A k¼1 k
X jk
ð1Þ
Product Purchase
Remanufacturing
Use Disposal
EoL new products
Recycling & Dumping Fig. 1. Life cycle model of photocopiers in Thailand. Table 1 Attributes of photocopiers.
Sales price Life time (years) Quality of image Reliability
New
Remanufactured
Refurbished
1 10 1 1
0.7 8 1 1
0.33 5 0.7 0.33
The values of ‘sales price’, ‘quality of image’, ‘reliability’ are relative to new products.
Please cite this article in press as: Umeda Y, et al. Modeling competitive market of remanufactured products. CIRP Annals Manufacturing Technology (2017), http://dx.doi.org/10.1016/j.cirp.2017.04.098
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phase, we do not simulate the market competition but just produce specified number of new and refurbished products according to the market data [12], and products are discarded according to the disposal density function. According to the market data [12] and the interviews to local experts, the annual sales of new and refurbished products at the end of Phase I are 89,000 and 16,000, respectively, and the market grows linearly by 16,300 per year. And, remanufacturing rate RR (i.e., the yield rate of products successfully remanufactured from end-of-life new products) is set to 30%. For achieving the customer preferences, we executed a questionnaire to office workers in Thailand (the number of answers is 200). We classified customers into four types according to the most important attributes the respondents chose; viz., price, life time, quality, and reliability. By applying the questionnaire answers of each customer type to Eq. (3), the weights of attributes in each customer type are derived as shown in Table 2. By using these weights, the probability Pij for choosing a product j in a customer type i is calculated by Eq. (2). Eqs. (4) and (5) calculate sales number of each product type j, where t, St, S , Stj , r, Ri, and Mtj denote time from the initial time (viz., 2010), sales number of all products at time t, sales number at the initial time, sales number of the product j at t, the growth rate of the market, the ratio of customer type i, and manufactured number of the product j at t, respectively. In this simulation, the manufactured number of the remanufactured products is constrained by the remanufacturing rate RR and the supply of end-oflife new products (cores in Section 2). If a customer cannot buy a remanufactured product, the customer buys a new product or a refurbished product according to the ratio of the second choice in the customer questionnaire. St ¼ S0 ð1 þ rtÞ X Stj ¼ min St Ri Pij ; Mtj i
ð4Þ ð5Þ
Customer type
Sales price Life time Quality Reliability Total (not classified)
1.104 0.330 1.235 1.473
0.308 0.687 0.599 1.337 0.106 0.237 0.441 0.986
7% 11% 11% 14% 11%
Monthly sales number of product 25,000 Phase I
20,000
Phase II
0
0
48
96 Time (month)
New Products
REMANUFACTURED 70%
REMANUFACTURED 30%
demand of REMANUFACTURED
144
192
REFURBISHED
Fig. 3. Simulation result: Scenario (b). Monthly sales number of products
4.2. Simulation results
25,000
We run the simulation on Life Cycle Simulator. Fig. 2 depicts the simulation result with the scenario described in Section 4.1 (we call it ‘Scenario (a)’). This figure represents monthly sales numbers of the three products in the Thai market; i.e., sum of the sales numbers of the four customer types. As shown in this figure, the order of sales numbers is new, refurbished, and remanufactured, although the order of customer preference is new, remanufactured, and refurbished as shown in Table 3. This means the supply of the Monthly sales number of products
Phaase I Phase
20,000
Phase II
15,000 10,000 5,000 0
0
48
96 Time (month)
144
NEW Product(a)
NEW products(c-1)
NEW products(c-2)
REMANUFACTURED(a)
REMANUFACTURED(c-1)
REMANUFACTURED(c-2)
REFURBISHED(a)
REFURBISHED(c-1)
REFURBISHED(c-2)
192
Fig. 4. Simulation result: Scenario (c).
2
Phase I
20,000
Refurbished
31% 41% 27% 23% 29%
remanufactured products is not enough. This figure also depicts the number of end-of-life new products (light orange line) and the demand of the remanufactured products (green). The supply of the remanufactured products (orange) is far smaller than their demand, because of the inadequate supply of cores. We also simulated the following variant scenarios: Scenario (b): Since the supply of the remanufactured products was not enough in Scenario (a), we increased the remanufacturing rate RR to 70%. As shown in Fig. 3, the supply (red line) increased compared with the orange line (RR = 30% in Scenario (a)), but still the demand (green) is not satisfied. Scenario (c): While the constraint of the remanufactured products is inadequate supply, the constraint of the refurbished products is the customer preference. Then, we changed attributes of the refurbished products as follows: (c-1): life time: 5 ! 7, reliability: 0.33 ! 0.53 (c-2): life time: 5 ! 9, reliability: 0.33 ! 0.73 Fig. 4 shows the result of Scenario (c); the improvement of attributes of the refurbished products increases the sales number and decreases that of the new products, while that of the remanufactured products does not change because of their insufficient supply.
‘Ratio’ indicates the ratio of the customer type in the market.
25,000
Remanufactured
62% 48% 61% 63% 60%
5,000
Sales price Life time Quality Reliability 1.574 0.336 1.880 2.328
Selected product New product
10,000
Ratio (%) Weight of attribute
21 13.5 44 21.5
Table 3 Customer type and product selection.
15,000
Table 2 Weights of attributes for each customer type.
Customer type Sales price Life time Quality Reliability
3
Phase II
5. Discussions
15,000
From the simulation results, we can discuss some issues of the diffusion of remanufactured and refurbished products as follows:
10,000 5,000 0
5.1. Validity of the market model 0
48
96
144
Time (month) NEW Products
REMANUFACTURED
EoL New Products
demand of REMANUFACTURED
REFURBISHED
Fig. 2. Simulation result: Scenario (a).
192
The market model depends on the derived weights shown in Table 2. In this table, the customer types are not perfectly consistent with the derived weights; for example, ‘reliability’ customers do not put high weight on the attribute ‘reliability’ of
Please cite this article in press as: Umeda Y, et al. Modeling competitive market of remanufactured products. CIRP Annals Manufacturing Technology (2017), http://dx.doi.org/10.1016/j.cirp.2017.04.098
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the products. One of the reasons is inconsistency of the respondents; while the customer type is determined by the answers to the question ‘Please prioritize attributes (viz., price, life time, quality of the image, and failure-free) you think important in purchasing a photocopier,’ the weights are calculated from the answers to the question ‘Please prioritize the products (i.e., the three product types) you want to purchase.’ Nevertheless, we believe dividing the market into several segments according to customer types is effective in order to represent diversity of the market. Actually, as shown in Table 3, ratios of the selected products are different according to the customer types. For example, ‘life time’ customers prefer the remanufactured products than others. Note that the way of the segmentation in this case study may need some more discussions. 5.2. Popularity of the remanufactured products It is said that the market shares of remanufactured and refurbished products are negligible and 20–30% in the real Thai market, respectively. The simulation results revealed that the demand of the remanufactured products is larger than our expectation. This trend seems to be superior than the uncertainty of the market model discussed above (see Table 3). We can point out two reasons. First, the respondents of the questionnaire are office workers who use photocopiers but do not buy by themselves. Then, the weight of the price might be too light. Second, if people know the remanufactured products and can compare products in such a way like Table 1, more people may choose the remanufactured products. In other words, advertisement of the remanufactured products is not enough in the real world. 5.3. Supply of the remanufactured product As shown in Scenarios (a) and (b). The supply of the remanufactured products is far smaller than their demand. This applies to emerging markets where the supply of end-of-life products (cores) is not enough. In other words, the supply amount is at most the sales of new products ten years ago (i.e., the life time of new product). Actually, the sales of photocopiers largely increased in the Thai market as shown in Fig. 2. This figure indicates that for satisfying the demand, the remanufacturing rate RR (viz., the rate of the green line to the light orange line) should be around 100% at 195th month. Although this situation will be solved when the market will be saturated, the supply of cores to be remanufactured is one of the most serious issues for diffusing remanufactured products. One possible solution is that OEM will import cores from developed countries, where the market is saturated. This is a winwin situation between developed and developing countries. 5.4. The role of the utility function Although we can calculate the sales number of each product type just by applying the ratios shown in Table 3, we employed polynomial logit model described in Section 3. This is because we can map the customers’ preference to the attributes of the products through the utility function. This enables to examine the effect of changes of attributes to the market share. And this in turn will lead the discussion on policies (e.g., tax and subsidy), life cycle design (e. g., PSS and remanufacturing rate), and product design (e.g., reliability design). Such discussion cannot be done just with the ratios shown in Table 3. This is what we are going to do, while the exactness of the mapping between the attributes and the purchase probability needs some detailed examination. The modeling method developed in this paper, including the market model in Life Cycle Simulator, is general enough to apply to other products in other areas as well as to add other key attributes of a product. On the other hand, since this is the first report on modeling the market competition of circulating products in developing countries, we have several issues to solve. Besides detailed analysis of the simulation results and improvement of the model, we found two interesting issues. First, while we focused on products in this paper, service is also important. ‘Life time’ and
‘reliability’ are determined by the combination of product and service. As described in Section 2, service contract helps the diffusion of the remanufactured photocopiers. We are going to model the product service systems that utilize remanufactured products as the next step. Technically, this is possible with Life Cycle Simulator. Second, we are going to derive requirements for policy, business model, life cycle design, and product design so as to expand the market share of remanufactured products. 6. Conclusions Remanufacturing is one of the most important life cycle options for increasing resource efficiency and realizing circular economy. However, remanufacturing in developing countries are struggling in the competition with new products and refurbished products, and cannot achieve market share in many cases. Based on our field study, we pointed out three issues of remanufacturing in developing countries; market competition, establishment of circulation, and business model. For discussing the first two issues, this paper proposed a market model to be incorporated in Life Cycle Simulation by employing polynomial logit model. This model successfully simulates dynamic market competition among new, remanufactured, and refurbished photocopiers in Thailand. The results revealed two important points. First, the share of the remanufactured products is constrained by its limited supply although they have larger demand than that of refurbished products. This implies the possibility of the diffusion of the remanufactured product if it is properly promoted and its circulating system is well established. Second, polynomial logit model is effective for examining the effect of changes of attributes of products to the market share and then for discussing policy, life cycle design, and product design, since it can map customers’ preference to the attributes through the utility function. Future works include expanding the simulation model to deal with product service systems, deriving requirements for policy, business model, life cycle design, and product design for increasing the market share of remanufactured products, and applying the simulation model to other products in other countries. Acknowledgments A part of this study is supported by the Environment Research and Technology Development Fund, Ministry of Environment, Japan (Grant No. S-16) and JSPS KAKENHI (Grant No. 16KT0102).
References [1] European Commission (2015) Closing the Loop—An Eu Action Plan for the Circular Economy. [2] Umeda Y, Takata S, et al (2012) Toward Integrated Product and Process Life Cycle Planning—An Environmental Perspective. CIRP Annals 61(2):681–702. [3] Duflou JR, Seliger G, et al (2008) Efficiency and Feasibility of Product Disassembly: A Case-based Study. CIRP Annals 57(2):583–600. [4] Sutherland JW, Adler DP, Haapala KR, Kumar V (2008) A Comparison of Manufacturing and Remanufacturing Energy Intensities with Application to Diesel Engine Production. CIRP Annals 57(1):5–8. [5] Sutherland JW, Jenkins TL, Haapala KR (2010) Development of a Cost Model and Its Application in Determining Optimal Size of a Diesel Engine Remanufacturing Facility. CIRP Annals 59(1):49–52. [6] Sakai T, Takata S (2012) Reconfiguration Management of Remanufactured Products for Responding to Varied User Needs. CIRP Annals 61(1):21–26. [7] Wang L, Wang XV, Gao L, Vancza J (2014) A Cloud-based Approach for WEEE Remanufacturing. CIRP Annals 63(1):409–412. [8] Widera H, Seliger G (2015) Methodology for Exploiting Potentials of Remanufacturing by Reducing Complexity for Original Equipment Manufacturers. CIRP Annals 64(1):463–466. [9] Liu Z, Afrinaldi F, Zhang H-C, Jiang Q (2016) Exploring Optimal Timing for Remanufacturing Based on Replacement Theory. CIRP Annals 65(1):447–450. [10] Umeda Y, Nonomura A, Tomiyama T (2000) Study on Life-cycle Design for the Post Mass Production Paradigm. AIEDAM 14(2):149–161. [11] Wooldridge JM (2013) Introductory Econometrics: A Modern Approach, 5th edition. South-Western College. Pub. ISBN-10: 1111531048. [12] IDC (2016) Laser HCP Shipment in Thailand CY2002-CY2015. [13] National Institute for Environmental Studies, Japan (2010) Lifespan Database for Vehicles, Equipment, and Structures: LiVEShttp://www.nies.go.jp/lifespan/ index-e.html.
Please cite this article in press as: Umeda Y, et al. Modeling competitive market of remanufactured products. CIRP Annals Manufacturing Technology (2017), http://dx.doi.org/10.1016/j.cirp.2017.04.098
CIRP-1656; No. of Pages 4 CIRP Annals - Manufacturing Technology xxx (2017) xxx–xxx
Contents lists available at ScienceDirect
CIRP Annals - Manufacturing Technology jou rnal homep age : ht t p: // ees .e lse vi er . com /ci r p/ def a ult . asp
Modeling competitive market of remanufactured products Yasushi Umeda (1)a,*, Kazuma Ishizuka a, Mitsutaka Matsumoto b, Yusuke Kishita a a b
Department of Precision Engineering, Graduate School of Engineering, The University of Tokyo, Japan National Institute of Advanced Industrial Science and Technology, Japan
A R T I C L E I N F O
A B S T R A C T
Keywords: Lifecycle Simulation Remanufacturing
Although remanufacturing is effective for increasing resource efficiency, its market share is very small in some developing countries. For analyzing market conditions for remanufacturing, this paper proposes a market model to be incorporated in Life Cycle Simulation by employing polynomial logit model. This model successfully simulated market competition among new, remanufactured, and refurbished products. The results suggest the possibility of diffusion of remanufactured products if the circulating system is well established. Polynomial logit model is effective for discussing policy, life cycle design, and product design, since it can map customers’ preference to the attributes of products through the utility function. © 2017 Published by Elsevier Ltd on behalf of CIRP.
1. Introduction Remanufacturing is one of the most important life cycle options for increasing resource efficiency and realizing circular economy [1]. While photocopiers, automobile parts, and construction machinery in developed countries are good practices [2], remanufacturing in developing countries is struggling in the competition with new products and refurbished products, and cannot achieve good market shares. On one hand, it should be competitive to the quality of brand-new products and on the other hand it should be competitive to the price of refurbished products. In the CIRP community, remanufacturing has been studied enthusiastically. Duflou et al. [3] discussed the importance of disassembly in remanufacturing with indicating cases. Sutherland et al. [4,5] intensively study remanufacturing in terms of energy, environmental loads, and cost. Sakai and Takata [6] proposed reconfiguration management of remanufactured products by using Life Cycle Simulation. Wang et al. [7] proposed cloud-based remanufacturing platform. Widera and Seliger [8] discussed obstacles of remanufacturing business. Lieu et al. [9] mathematically evaluated optimal timing of remanufacturing. However, market competition of remanufactured products with other types of products has not been studied in this community. This paper focuses on remanufacturing in Southeast Asia. We executed some field studies in this area and found some difficulties of remanufacturing in achieving a certain market share under the competition with new products and other circulating products like refurbished products, reused products, second-hand products, etc. In order to diffuse remanufactured products, some conditions including price and quality comparing to competing products should be satisfied and/or changes of business models are needed. The goal of this research is to find out such conditions and business
* Corresponding author. E-mail address: [email protected] (Y. Umeda).
models and then to specify requirements for life cycle design of the products to be remanufactured. As the first step, this paper proposes a model to simulate the market competition among new, remanufactured, and other circulating products, in order to find out the above-mentioned conditions. For this purpose, we expand Life Cycle Simulation [10] by incorporating a market model. Life Cycle Simulation [10] is a method to simulate flows of products, parts, materials, energy, money, information and so on throughout a product life cycle by employing a discrete event simulation technique for supporting life cycle design. The rest of this paper is organized as follows. Section 2 summarizes our field studies in Southeast Asia and points out difficulties of remanufacturing. Section 3 describes the market model. Section 4 illustrates the life cycle model we developed and its simulation results. Section 5 discusses the simulation results. And, Section 6 concludes this paper.
2. Remanufacturing in Southeast Asia and its issues In this paper, we focus on markets in Southeast Asia and assume the following three kinds of products as representatives: New product: A new product is manufactured by an OEM (e.g., Xerox) with newly manufactured parts. The product is sold and used in a target market. And, a certain rate of end-of-life products is collected by the OEM. Remanufactured product: A remanufactured product is made by the OEM from the collected end-of-life new products with genuine spare parts in the target area. The ‘like new’ quality is guaranteed by the OEM. At its end-of-life, the product is no longer remanufactured as a product. Refurbished product: An independent refurbisher imports end-of-life new products from developed countries (e.g., U. S. A.) and refurbishes them with replica new parts made by third party manufacturers and reused parts. In general, its quality is inferior to new or remanufactured products and the life time is shorter than
http://dx.doi.org/10.1016/j.cirp.2017.04.098 0007-8506/© 2017 Published by Elsevier Ltd on behalf of CIRP.
Please cite this article in press as: Umeda Y, et al. Modeling competitive market of remanufactured products. CIRP Annals Manufacturing Technology (2017), http://dx.doi.org/10.1016/j.cirp.2017.04.098
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CIRP-1656; No. of Pages 4 Y. Umeda et al. / CIRP Annals - Manufacturing Technology xxx (2017) xxx–xxx
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them. At the end-of-life, the products are no longer refurbished as a product. This paper takes the position to promote remanufactured products in Southeast Asia. We here take Southeast Asia as a typical example of developing countries. Since the population and the consumption of goods increase in developing countries, ensuring resource efficiency in these countries is an urgent and important issue, which also leads to sustainable consumption and production in developing countries. We executed field studies in Singapore and Thailand, in which we made interviews to OEMs, remanufacturers, and refurbishers of photocopiers, construction machinery, and factory equipment. We found out cases that are impeding the promotion of remanufactured products as follows Not enough needs: Refurbished photocopiers sell better than remanufactured ones because of their cheaper prices. ‘Like-new’ quality of remanufactured photocopiers is excessive. Refurbished products are cheap, because the refurbishers do not use OEM’s genuine spare parts but use replica new parts. While this may reduce the quality of the products, the quality of such replica parts is increasing. On the other hand, large firms often employ product service systems (PSS). The firms do not care whether the photocopiers are brand-new or remanufactured as far as the contracted service level is kept. Then, PSS is a good target of supply of remanufactured photocopiers. supply of core: Supply of cores (i.e., end-of-life new products) is problematic. The customers or lease companies do not return endof-life products to OEMs. Since they do not have service contracts with OEMs, OEMs cannot grasp products to be discarded. Price destruction: In the Thai market, an OEM drastically reduced the price of new photocopiers. As a result, many refurbishers disappeared very quickly because the refurbished products lost the price competitiveness. The market of circulating products is very complicated and dynamic, and we are not sure to whom we shall support; OEMs, OEMs’ remanufacturing, refurbishers, or third party parts manufacturers. According to this field study, we can summarize the essential issues of remanufacturing as follows: 1. Market competition: The market competition among new and circulating products is very severe. There seems to be some implicit balance of price, quality, and durability. 2. Establishment of circulation: For expanding the share in the competitive market, the supply of cores is quite critical. 3. Business model: Quality assurance by PSS is a hopeful approach to expand the share of the circulating products. This paper focuses on the issues 1 and 2. For discussing conditions for diffusing remanufactured products, we simulate the market competition among three products by expanding Life Cycle Simulation [10]. This will be discussed in Section 3.
XT Pj ¼ eY j = j¼1 eY j
ð2Þ
The methodology [11] also provides a method to determine the weights of the attributes Ak. Namely, when the choice jn of each customer nð1 n NÞ are given where N is the number of the customers, the weights are determined so as to maximize the likelihood function L defined as Eq. (3). L¼
YN
ð3Þ
P n¼1 jn
4. Simulation We construct a life cycle model for simulating the market competition of remanufactured products against new and refurbished products. We here take a photocopier market in Thailand as a target case study. While the photocopier markets are shrinking in developed countries, the markets increase in developing countries [12]. Since photocopier is a typical circulating product, data on circulating products are available and reliable. We then focus on the photocopier market. Of course, the model is applicable to other products in other areas. 4.1. Simulation conditions The life cycles of the three products are modeled as described in Section 2. Fig. 1 depicts the life cycle model of these three products. In this figure, the process ‘Product Purchase’ implements the market model described in Section 3. As the reference scenario, we set the following conditions. Table 1 indicates attributes of the three types of products according to the interviews to local experts. For representing the life times, we modeled the disposal density function, denoting rate of disposal per time unit, as a Weibull distribution with shape parameter of 1.82 from the Reference [13] and scale parameters of 55.2 (months) (new product), 42.9 (remanufactured), and 31.8 (refurbished) so as to fit the life times in Table 1. The simulation covers 200 months from January 2002, since we obtained the market data in Thailand from 2002 [12]. We assumed that an OEM started to sell the remanufactured products from 2010. The simulation is divided into two phases; preparation phase (Phase I) between 2002 and 2009 and main phase (Phase II) from 2010. In the main phase, the remanufactured products are sold and the three types of products are purchased according to the market model. Since the remanufactured products are made from end-oflife new products, we should simulate the market state in 2010, which consists of new products of different ages and refurbished products of different ages. This is the simulation in Phase I; in this Parts
Products imported from, e. g., U.S.A.
Manufacturing
3. Market model
Refurbish
In this paper, we employ ‘polynomial logit model’ [11] as the market model, since this model can represent the situation where a customer selects a choice among multiple candidates and is a simple fundamental model. The model represents the utility of a product as a weighted sum of attributes and calculates the probability for choosing a product by applying a logistic function to the utility value. Namely, the model represents the utility Yj of a product j ð1 j T Þ for a customer as shown in Eq. (1), where T, M, Xjk , Ak ð1 k MÞ denote the number of candidates, the number of focused attributes of a product, the value of the attribute k of product j, and the weight of the attribute k for the customer, respectively. Moreover, the probability Pj for choosing a product j is defined as shown in Eq. (2). Yj ¼
XM
A k¼1 k
X jk
ð1Þ
Product Purchase
Remanufacturing
Use Disposal
EoL new products
Recycling & Dumping Fig. 1. Life cycle model of photocopiers in Thailand. Table 1 Attributes of photocopiers.
Sales price Life time (years) Quality of image Reliability
New
Remanufactured
Refurbished
1 10 1 1
0.7 8 1 1
0.33 5 0.7 0.33
The values of ‘sales price’, ‘quality of image’, ‘reliability’ are relative to new products.
Please cite this article in press as: Umeda Y, et al. Modeling competitive market of remanufactured products. CIRP Annals Manufacturing Technology (2017), http://dx.doi.org/10.1016/j.cirp.2017.04.098
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phase, we do not simulate the market competition but just produce specified number of new and refurbished products according to the market data [12], and products are discarded according to the disposal density function. According to the market data [12] and the interviews to local experts, the annual sales of new and refurbished products at the end of Phase I are 89,000 and 16,000, respectively, and the market grows linearly by 16,300 per year. And, remanufacturing rate RR (i.e., the yield rate of products successfully remanufactured from end-of-life new products) is set to 30%. For achieving the customer preferences, we executed a questionnaire to office workers in Thailand (the number of answers is 200). We classified customers into four types according to the most important attributes the respondents chose; viz., price, life time, quality, and reliability. By applying the questionnaire answers of each customer type to Eq. (3), the weights of attributes in each customer type are derived as shown in Table 2. By using these weights, the probability Pij for choosing a product j in a customer type i is calculated by Eq. (2). Eqs. (4) and (5) calculate sales number of each product type j, where t, St, S , Stj , r, Ri, and Mtj denote time from the initial time (viz., 2010), sales number of all products at time t, sales number at the initial time, sales number of the product j at t, the growth rate of the market, the ratio of customer type i, and manufactured number of the product j at t, respectively. In this simulation, the manufactured number of the remanufactured products is constrained by the remanufacturing rate RR and the supply of end-oflife new products (cores in Section 2). If a customer cannot buy a remanufactured product, the customer buys a new product or a refurbished product according to the ratio of the second choice in the customer questionnaire. St ¼ S0 ð1 þ rtÞ X Stj ¼ min St Ri Pij ; Mtj i
ð4Þ ð5Þ
Customer type
Sales price Life time Quality Reliability Total (not classified)
1.104 0.330 1.235 1.473
0.308 0.687 0.599 1.337 0.106 0.237 0.441 0.986
7% 11% 11% 14% 11%
Monthly sales number of product 25,000 Phase I
20,000
Phase II
0
0
48
96 Time (month)
New Products
REMANUFACTURED 70%
REMANUFACTURED 30%
demand of REMANUFACTURED
144
192
REFURBISHED
Fig. 3. Simulation result: Scenario (b). Monthly sales number of products
4.2. Simulation results
25,000
We run the simulation on Life Cycle Simulator. Fig. 2 depicts the simulation result with the scenario described in Section 4.1 (we call it ‘Scenario (a)’). This figure represents monthly sales numbers of the three products in the Thai market; i.e., sum of the sales numbers of the four customer types. As shown in this figure, the order of sales numbers is new, refurbished, and remanufactured, although the order of customer preference is new, remanufactured, and refurbished as shown in Table 3. This means the supply of the Monthly sales number of products
Phaase I Phase
20,000
Phase II
15,000 10,000 5,000 0
0
48
96 Time (month)
144
NEW Product(a)
NEW products(c-1)
NEW products(c-2)
REMANUFACTURED(a)
REMANUFACTURED(c-1)
REMANUFACTURED(c-2)
REFURBISHED(a)
REFURBISHED(c-1)
REFURBISHED(c-2)
192
Fig. 4. Simulation result: Scenario (c).
2
Phase I
20,000
Refurbished
31% 41% 27% 23% 29%
remanufactured products is not enough. This figure also depicts the number of end-of-life new products (light orange line) and the demand of the remanufactured products (green). The supply of the remanufactured products (orange) is far smaller than their demand, because of the inadequate supply of cores. We also simulated the following variant scenarios: Scenario (b): Since the supply of the remanufactured products was not enough in Scenario (a), we increased the remanufacturing rate RR to 70%. As shown in Fig. 3, the supply (red line) increased compared with the orange line (RR = 30% in Scenario (a)), but still the demand (green) is not satisfied. Scenario (c): While the constraint of the remanufactured products is inadequate supply, the constraint of the refurbished products is the customer preference. Then, we changed attributes of the refurbished products as follows: (c-1): life time: 5 ! 7, reliability: 0.33 ! 0.53 (c-2): life time: 5 ! 9, reliability: 0.33 ! 0.73 Fig. 4 shows the result of Scenario (c); the improvement of attributes of the refurbished products increases the sales number and decreases that of the new products, while that of the remanufactured products does not change because of their insufficient supply.
‘Ratio’ indicates the ratio of the customer type in the market.
25,000
Remanufactured
62% 48% 61% 63% 60%
5,000
Sales price Life time Quality Reliability 1.574 0.336 1.880 2.328
Selected product New product
10,000
Ratio (%) Weight of attribute
21 13.5 44 21.5
Table 3 Customer type and product selection.
15,000
Table 2 Weights of attributes for each customer type.
Customer type Sales price Life time Quality Reliability
3
Phase II
5. Discussions
15,000
From the simulation results, we can discuss some issues of the diffusion of remanufactured and refurbished products as follows:
10,000 5,000 0
5.1. Validity of the market model 0
48
96
144
Time (month) NEW Products
REMANUFACTURED
EoL New Products
demand of REMANUFACTURED
REFURBISHED
Fig. 2. Simulation result: Scenario (a).
192
The market model depends on the derived weights shown in Table 2. In this table, the customer types are not perfectly consistent with the derived weights; for example, ‘reliability’ customers do not put high weight on the attribute ‘reliability’ of
Please cite this article in press as: Umeda Y, et al. Modeling competitive market of remanufactured products. CIRP Annals Manufacturing Technology (2017), http://dx.doi.org/10.1016/j.cirp.2017.04.098
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the products. One of the reasons is inconsistency of the respondents; while the customer type is determined by the answers to the question ‘Please prioritize attributes (viz., price, life time, quality of the image, and failure-free) you think important in purchasing a photocopier,’ the weights are calculated from the answers to the question ‘Please prioritize the products (i.e., the three product types) you want to purchase.’ Nevertheless, we believe dividing the market into several segments according to customer types is effective in order to represent diversity of the market. Actually, as shown in Table 3, ratios of the selected products are different according to the customer types. For example, ‘life time’ customers prefer the remanufactured products than others. Note that the way of the segmentation in this case study may need some more discussions. 5.2. Popularity of the remanufactured products It is said that the market shares of remanufactured and refurbished products are negligible and 20–30% in the real Thai market, respectively. The simulation results revealed that the demand of the remanufactured products is larger than our expectation. This trend seems to be superior than the uncertainty of the market model discussed above (see Table 3). We can point out two reasons. First, the respondents of the questionnaire are office workers who use photocopiers but do not buy by themselves. Then, the weight of the price might be too light. Second, if people know the remanufactured products and can compare products in such a way like Table 1, more people may choose the remanufactured products. In other words, advertisement of the remanufactured products is not enough in the real world. 5.3. Supply of the remanufactured product As shown in Scenarios (a) and (b). The supply of the remanufactured products is far smaller than their demand. This applies to emerging markets where the supply of end-of-life products (cores) is not enough. In other words, the supply amount is at most the sales of new products ten years ago (i.e., the life time of new product). Actually, the sales of photocopiers largely increased in the Thai market as shown in Fig. 2. This figure indicates that for satisfying the demand, the remanufacturing rate RR (viz., the rate of the green line to the light orange line) should be around 100% at 195th month. Although this situation will be solved when the market will be saturated, the supply of cores to be remanufactured is one of the most serious issues for diffusing remanufactured products. One possible solution is that OEM will import cores from developed countries, where the market is saturated. This is a winwin situation between developed and developing countries. 5.4. The role of the utility function Although we can calculate the sales number of each product type just by applying the ratios shown in Table 3, we employed polynomial logit model described in Section 3. This is because we can map the customers’ preference to the attributes of the products through the utility function. This enables to examine the effect of changes of attributes to the market share. And this in turn will lead the discussion on policies (e.g., tax and subsidy), life cycle design (e. g., PSS and remanufacturing rate), and product design (e.g., reliability design). Such discussion cannot be done just with the ratios shown in Table 3. This is what we are going to do, while the exactness of the mapping between the attributes and the purchase probability needs some detailed examination. The modeling method developed in this paper, including the market model in Life Cycle Simulator, is general enough to apply to other products in other areas as well as to add other key attributes of a product. On the other hand, since this is the first report on modeling the market competition of circulating products in developing countries, we have several issues to solve. Besides detailed analysis of the simulation results and improvement of the model, we found two interesting issues. First, while we focused on products in this paper, service is also important. ‘Life time’ and
‘reliability’ are determined by the combination of product and service. As described in Section 2, service contract helps the diffusion of the remanufactured photocopiers. We are going to model the product service systems that utilize remanufactured products as the next step. Technically, this is possible with Life Cycle Simulator. Second, we are going to derive requirements for policy, business model, life cycle design, and product design so as to expand the market share of remanufactured products. 6. Conclusions Remanufacturing is one of the most important life cycle options for increasing resource efficiency and realizing circular economy. However, remanufacturing in developing countries are struggling in the competition with new products and refurbished products, and cannot achieve market share in many cases. Based on our field study, we pointed out three issues of remanufacturing in developing countries; market competition, establishment of circulation, and business model. For discussing the first two issues, this paper proposed a market model to be incorporated in Life Cycle Simulation by employing polynomial logit model. This model successfully simulates dynamic market competition among new, remanufactured, and refurbished photocopiers in Thailand. The results revealed two important points. First, the share of the remanufactured products is constrained by its limited supply although they have larger demand than that of refurbished products. This implies the possibility of the diffusion of the remanufactured product if it is properly promoted and its circulating system is well established. Second, polynomial logit model is effective for examining the effect of changes of attributes of products to the market share and then for discussing policy, life cycle design, and product design, since it can map customers’ preference to the attributes through the utility function. Future works include expanding the simulation model to deal with product service systems, deriving requirements for policy, business model, life cycle design, and product design for increasing the market share of remanufactured products, and applying the simulation model to other products in other countries. Acknowledgments A part of this study is supported by the Environment Research and Technology Development Fund, Ministry of Environment, Japan (Grant No. S-16) and JSPS KAKENHI (Grant No. 16KT0102).
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Please cite this article in press as: Umeda Y, et al. Modeling competitive market of remanufactured products. CIRP Annals Manufacturing Technology (2017), http://dx.doi.org/10.1016/j.cirp.2017.04.098