When remanufacturing meets product quality improvement: The impact of production cost

Remanufacturing as well as quality improving innovations are important activities to improve sustainability. However, when coexisting in one company, their interaction is not clear. On the one hand, past research found a positive impact of remanufacturing on product quality. On the other hand, remanufacturing was shown to be negatively affected by an industry’s technology trajectory of quality improvements. Using a stylized model of endogenous product quality improvement and remanufacturing we find that the main driver of the contradicting results is the change in manufacturing costs caused by improving product quality. A strong increase in manufacturing costs due to product quality improvement may induce the firm to take up remanufacturing when introducing the new product. Conversely, a small impact of product quality improvement on manufacturing costs reverses this effect and may indeed lead the firm to cease remanufacturing when introducing the new product. We find that the latter outcome is never beneficial from an environmental point of view, while the former always is. With endogenous product quality improving innovation we then characterize conditions where a remanufacturing manufacturer would take a different product quality improvement decision than a non-remanufacturing manufacturer. We observe that remanufacturing stifles (stimulates) product quality improvement when manufacturing cost of quality improved products are low (high). Neither of the two results are exclusively beneficial or detrimental from an environmental perspective and we characterize the conditions under which product quality improvement is preferable.