Collection channel and production decisions in a closed-loop supply chain with remanufacturing cost disruption

Abstract

Enterprise risk management (ERM) focuses on managing functions of an entire business, with special attention to supply chain uncertainty. Managing supply chain through effective ERM will mitigate firm exposure to risk in operations and ensure the success of the business. We study collection channel and production decisions in a closed-loop supply chain (CLSC) with one dominant manufacturer and one retailer, from the perspective of both firm profit and system robustness. A robust system is desired as only minimal changes in production plan are necessary when facing disruption, and is valuable for enterprise risk reduction. We find that without disruption the indirect (retailer) collection channel achieves higher profit than that of the direct (manufacturer) channel, which is also true under some disruption cases. However, the direct channel is more robust when facing disruption, and generates more profits for manufacturers when the positive disruption is large. We also find that the revenue-sharing contracts are effective in coordinating members of the CLSC. Finally, we conduct numerical studies to validate the models and derive managerial insights.

Keywords:

• enterprise risk management
• closed-loop supply chain
• dominant manufacturer
• collection channel
• game theory