Product design for leased products under remanufacturing

Due to growing regulations, competition, and a changing corporate culture, original equipment manufacturers (OEMs) are now increasing their extended producer responsibility (EPR). In this paper, we explore how this trend of EPR affects product design when an OEM decides to lease their products and then remanufacture them at the end of a lease period. In this context, we investigate the level of durability to be built into the parts of a product. Our analysis reveals that, assuming a linear cost/durability tradeoff, there are discrete durability levels for each part to select from, and that, the optimal durability level for a part depends on: (1) the quantity of products remanufactured, (2) the profit margin of remanufactured products, and (3) the recovery rate of leased products. Also, we show how our analysis can be extended to: (1) accommodate various forms of nonlinear cost/durability trade-off functions, and (2) address cannibalization of new product leases by remanufactured products.