As businesses and policymakers seek to transition to a circular economy, two strategies often emerge as promising solutions: servicizing (offering products as services) and remanufacturing (restoring used products for resale). Both aim to decouple economic growth from resource consumption, promoting sustainability and efficiency.

A study published in Manufacturing & Service Operations Management by Rogelio Oliva, associate dean for research and scholarship and the Robyn L. ’89 and Alan B. Roberts ’78 Chair in Business, along with Xichen Sun of Tilburg University and Tharanga Rajapakshe of the University of Florida, reveals that servicizing and remanufacturing don’t always work well together, challenging common assumptions about sustainable business practices.

The Strategy Conflict

The study demonstrates that when companies pursue both servicizing and remanufacturing, they often face competing effects rather than complementary benefits. The presence of remanufacturing consistently makes servicizing less attractive to adopt, while servicizing can discourage remanufacturing unless the cost savings are substantial.

This competition emerges primarily in the low-usage market segment, where both strategies target cost-sensitive customers. The research shows that companies must carefully evaluate whether the benefits of combining these approaches outweigh the potential conflicts they create.

When Joint Adoption Works

Despite the competition, the study identifies conditions where adopting both strategies can yield economic and environmental benefits:

• Moderate Remanufacturing Costs: The joint adoption of servicizing and remanufacturing is most beneficial when remanufacturing costs are neither too high nor too low.
• High Demand Pooling: Firms with robust demand pooling capabilities can better balance the cost and benefits of both strategies.
• Complementary Effects: The two strategies complement each other when remanufacturing costs are significantly reduced due to servicizing without eroding the profitability of the latter.

The Cost-Benefit Trade-off

The study reveals complex trade-offs in implementing these strategies. Servicizing offers advantages through pay-per-use models and demand pooling but can come with higher operational costs. Remanufacturing can reduce production costs but may cannibalize new product sales, particularly among customers with lower usage rates.

When remanufacturing costs are high, companies might optimize profits by limiting remanufactured products, even though this decision reduces the environmental benefits of extended product lifecycles. This tension highlights the need for careful planning to ensure circular economy initiatives achieve both economic and environmental objectives.

Practical Implementation Challenges

For managers considering these strategies, the research emphasizes the importance of industry-specific analysis. Companies must evaluate their operational capabilities, market characteristics, and cost structures to determine whether joint adoption makes sense. This includes assessing demand pooling potential, remanufacturing cost efficiencies, and target market segments.

The findings suggest that successful implementation requires a nuanced understanding of how these strategies interact within specific business contexts. Companies need robust metrics to monitor both economic performance and environmental impact, ensuring their circular economy initiatives deliver intended benefits.

Policy Implications

For policymakers, the research highlights the need for more sophisticated approaches to promoting circular economy initiatives. Rather than advocating for universal adoption of these strategies, policies should encourage industry-specific solutions that account for different market dynamics and operational realities.

This might include developing tailored metrics for different sectors, supporting research into cost-reduction technologies, and creating incentives that align economic and environmental objectives. The goal should be to help companies find the right mix of circular economy strategies for their specific circumstances.