Closed-Loop Supply Chain Models with Product Remanufacturing

TLDR

Remanufacturing used products into new ones is widely recognized as important in both literature and practice. This study seeks to determine the optimal reverse channel structure for collecting used products from customers. The authors model a manufacturer’s three collection options—direct collection, incentivizing an existing retailer, or subcontracting—to a decentralized decision‑making system where the manufacturer acts as Stackelberg leader. They find that the retailer, being closest to customers, is the most effective collector, and that simple coordination mechanisms can match the collection effort and supply‑chain profits of a centrally coordinated system.

Abstract

The importance of remanufacturing used products into new ones has been widely recognized in the literature and in practice. In this paper, we address the problem of choosing the appropriate reverse channel structure for the collection of used products from customers. Specifically, we consider a manufacturer who has three options for collecting such products: (1) she can collect them herself directly from the customers, (2) she can provide suitable incentives to an existing retailer (who already has a distribution channel) to induce the collection, or (3) she can subcontract the collection activity to a third party. Based on our observations in the industry, we model the three options described above as decentralized decision-making systems with the manufacturer being the Stackelberg leader. When considering decentralized channels, we find that ceteris paribus, the agent, who is closer to the customer (i.e., the retailer), is the most effective undertaker of product collection activity for the manufacturer. In addition, we show that simple coordination mechanisms can be designed such that the collection effort of the retailer and the supply chain profits are attained at the same level as in a centrally coordinated system.