Collect, Recover, & Remarket

1. Trade-ins & Buyback Is it worth it, & when? Collect, Recover, & Remarket Designing End-of-Use Product Acquisition Policies Dwayne Cole Doctoral Candidate Whitman School of Management Syracuse University Syracuse, New York April 1, 2011 Final Purchase and End-of-Life Acquisition Decision

2. Research Motivation “Recycling end-of-use (EOU) electronics rather than disposing of them makes use of valuable materials there by conserving natural resources & saving energy” A Sustainability Concern Distribution intensity… Final Purchase and End-of-Life Acquisition Decision

3. Research Motivation E-waste has become a significant environmental concern Innovation and growth in computer sales has led to deep environmental concerns 2000 -2007 3,028 million 1,862 million 133,000 units of computers are thrown away each day. Gartner, Inc. 400,000,000 units of electronic waste is scraped annually. International Association of Electronics Recyclers . 130,000,000 cell phones retired annually. EPA, e-Cycling FAQ’s 360 million Final Purchase and End-of-Life Acquisition Decision

4. Research Motivation Durable good industries facing global environmental legislations Extended Producer Responsibility (EPR) is a global supply chain management concern. EPR seeks to reduce waste disposal, & prompt manufactures to adopt eco-friendly product designs. Final Purchase and End-of-Life Acquisition Decision

5. Research Motivation Take-back and recovery is becoming an attractive remedy State Legislation on E-waste A new era of supply chains and reverse marketing channels designed to capture “residual” economic value from used goods Final Purchase and End-of-Life Acquisition Decision

6. Product Recovery (Opportunities) Supply Side and Demand Side Recovery Opportunities Dell GameStop Collects, recovers, and remarkets used gaming consoles Sales computer equipment with extended warranties Demand Side meet secondhand market demand Supply Side Harvest reusable components Final Purchase and End-of-Life Acquisition Decision

7. Supply Chain Managerial Problem Market Driven Product-Acquisition Decisions are Complicated How to determine how much to pay? How to motivate the right returns, at the right time? How to matching supply and demand? How to develop take-back policies that coordinate forward and reverse channel profit objectives? Collecting consumer returns for the purpose of harvesting components and remarketing recovered goods requires coordinating forward and reverse channel profit objectives Final Purchase and End-of-Life Acquisition Decision

8. P1: Recovery for Remanufacturing Product Tack-back policies for the purpose of resell GameStop Collects, recovers, and remarkets used gaming consoles Demand Side meet secondhand market demand Final Purchase and End-of-Life Acquisition Decision

9. Online Trade-in Value Calculator OEMs and Retailers Providing Online Trade-in Applications Large retailers (e.g., BestBuy, RadioShack) and OEMs (e.g., XEROX, Dell) provide value estimators to support trade-in and take back

10. Managerial Dilemma Determining Trade-in Value : Critical to Success Concern What buyback or trade-in price should the firm offer for used product of a particular age or condition, and how should this price change over time? Under what settings is a buyback policy preferred over a trade-in policy, should a firm use both types of policies simultaneously or does a single policy dominate, and if there is dominance, does the dominant policy depend on the stage of the new or remanufactured product life-cycle? How does the introduction of a new generation of the product influence the optimal buyback price function?

11. Trade-in Offers (Decision Complexity) Evolving heterogeneity in condition and willingness to return Incorporating life cycle dynamics into end-of-use product acquisition pricing is complicated, yet potentially worthwhile

12. Related Marketing Literature Focused on Demand Management Price discrimination and cannibalization: Van Ackere and Reyniers (1995), Levinthal and Purohit (1989) Fudenberg and Tirole (1998) Accelerate replacement purchases Bruce et al. (2006); Rao et al. (2009) Quality and timing returns: Guide and Jayaraman (2000) and Flapper (2001); Klausner and Hendrickson (2000); Galbreth and Blackburn (2006); Zikopoulos and Tagaras (2007) Matching supply and demand: Bakal and Akcali (2006) and Ray et al. (2006) (Continuous quality); Guide et al. (2003) and Karakayali et al. (2007) (Discrete quality classes) Lifecycle dynamics: Tibben-Lembke(2002) and Östlin et al. (2009); Marketing recovered products: Debo et al. (2006); Reuse Economics: Geyer et al. (2007), Zikopoulos and Tagaras (2007)

13. × Product Take-back Policies Policy Development and Analysis Myopic Buyback Proactive Trade-in Numerical Results Managerial Insights General Model Optimality Conditions Final Purchase and End-of-Life Acquisition Decision

14. Project Status

15. P2: Recovery for Harvesting Components Trade-in and recovery in response to CPOA Dell Sales computer equipment with extended warranties Supply Side Harvest reusable components Final Purchase and End-of-Life Acquisition Decision

16. Managerial Decision Dilemma Balance Environmental Benefits & Economic Value … The supplier will come to us and say okay, in the next three months we are going to stop producing this part forever, how many do you want? … in those situations where demand for warranty parts ends up greater than we thought, if in those situations we can go out to the install base and proactively identify those units that we would like to have back. We could offer the current customer a very good deal on an upgrade and get those systems back and then tear them down. Final Purchase and End-of-Life Acquisition Decision

17. State of the Literature Little research integrates marketing variable How to predict warranty claims demand Warranty Literature: Murthy et al. (2004); Gerner and Bryant (1980); Seitz (2007) How many should the OEM procure from supplier Life Time Buy: Fortuin (1980) ; Teunter and Fortuin (1999); Teunter and Hansveld (1998); Bradley and Guerrero (2009) How to design the trade-in program Trade-in: Ray et al. (2005); Bruce et al. (2006); Rao et al. (2009) Final Purchase and End-of-Life Acquisition Decision

18. Policy Framework Overview of Policy Analysis Objective: Minimize discounted cost Continuous Time One time, take it or leave it offer to the masses Discrete Time Full Trade-in Matching Policy Periodic, take it or leave it offer to a market segement Final Purchase and End-of-Life Acquisition Decision

19. × Model Development General Cost function The expected cost of ordering q1 units Final Order component cost Expected warranty service and holding cost Warranty Service Expected Second Stage cost c2 = trade-in acquisition cost cw = warranty service cost h = holding cost c3 = salvage cost The component demand rate at time t and the cumulative demand through D(t) T(q1) = trade-in acquisition cost d(t) = demand rate D(t) = cumulative demand Time the component inventory reaches zero L : warranty horizon N(t) : warranty population n(t) : warranty expirations a : component failure rate Final Purchase and End-of-Life Acquisition Decision

20. × Consumer Choice Model Important Derivations A firm offering a trade-in program specifies the discount off the purchase price of a new model if the customer returns the old model. Trade-in offer acceptance rate Trade-in offer component return rate Trade-in component per unit acquisition cost Final Purchase and End-of-Life Acquisition Decision

21. × Full Trade-in Policy General Model Expected Cost for the Full Trade-in Policy Final Purchase and End-of-Life Acquisition Decision

22. × Matching Trade-in Policy General Model Trade-in acceptance rate The component supply matches the component demand Trade in offer rate Component Acquisition Cost Expected Cost for the Matching Trade-in Policy Final Purchase and End-of-Life Acquisition Decision

23. Full vs. Matching The relationship between Full vs. Matching Full Trade-in Matching Trade-in Final Purchase and End-of-Life Acquisition Decision

24. Assuming: r = h = n = 0 Full vs. Matching The relationship between Full and Matching trade-in quantities Full (restricted) Matching Final Purchase and End-of-Life Acquisition Decision

25. Full vs. Matching The relationship between Full and Matching 2nd Stage Cost Proposition 6: Final Purchase and End-of-Life Acquisition Decision

26. Project Status

27. Questions Final Purchase and End-of-Life Acquisition Decision