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Closed–Loop Supply Chain Models with Product Remanufacturing

Kellogg School of Management, Northwestern University, Evanston, Illinois 60208
Technology Management, INSEAD, Boulevard de Constance, 77305 Fontainebleau, Cedex, France
Technology Management, INSEAD, Boulevard de Constance, 77305 Fontainebleau, Cedex, France
r\|[minus ]\|savaskan{at}kellogg.northwestern.edu
shantanu.bhattacharya{at}insead.edu
luk.van\|[minus ]\|wassenhove{at}insead.edu

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.

Key Words: supply chain management; reverse logistics; remanufacturing; channel structure
History: Received: October 24, 2003;

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