Managing the Inter‐Functional Tension between Accounting‐ and Financial‐Profits in Remanufacturing Multiple‐Usecycle Products

Akshay Mutha, Saurabh Bansal and V. Daniel R. Guide

Production and Operations Management, 2021, vol. 30, issue 9, 2993-3014

Abstract: We investigate the tension between accounting and financial functions of an OEM who manufactures and remanufactures capital‐intensive products. The OEM operates a servicizing business model in which it leases a product, remanufactures the product returned at the end of the lease, and re‐leases the remanufactured product (usecycle), with multiple such usecycles. The accounting function at the firm would suggest that the OEM: (i) recovers the initial manufacturing cost of the product over its useful life as prescribed by IRS guidelines via depreciation; (ii) remanufactures the product as long as its initial manufacturing cost is not fully recovered; and (iii) removes the product from the books immediately after it has completely depreciated. In contrast, the financial function would consider the initial manufacturing cost of the product to be a sunk cost and would suggest that the firm continues to remanufacture the product as long as the remanufacturing cost is lower than the cost of a new unit. In this study, we investigate and prescribe ways to resolve this tension using analytical models. Specifically, we first show that the optimal durations over which the product should be used and lease prices that maximize the OEM's accounting profit and financial profit are different. We then discuss two operational approaches to align the accounting and operational perspectives while following IRS guidelines. Finally, informed by this analysis, we develop policy prescriptions to promote remanufacturing of multiple usecycle products. Overall, this analysis highlights the role of regulatory guidelines on remanufacturing operations and the inter‐functional effort required by OEMs to successfully integrate remanufacturing operations in their business strategy.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.1111/poms.13414

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:popmgt:v:30:y:2021:i:9:p:2993-3014

Ordering information: This journal article can be ordered from
http://onlinelibrary ... 1111/(ISSN)1937-5956

Access Statistics for this article

Production and Operations Management is currently edited by Kalyan Singhal

More articles in Production and Operations Management from Production and Operations Management Society
Bibliographic data for series maintained by Wiley Content Delivery ().