Coordinating a closed-loop supply chain using a bargaining power approach

Abstract

Coordinating a vertically separated channel by means of contracting mechanisms has been extensively researched. This study investigates the performance of two commonly used contracting mechanisms: the wholesale price contract and the revenue-sharing contract in coordinating a closed-loop supply chain that consists of two competing channels in the market: a manufacturing and a remanufacturing supply chain. This study formulates the problem as multi-variable optimisation models under centralised, non-cooperative decentralised, and cooperative decentralised regimes using a bargaining power theory. We carried out equilibrium analyses and in-depth numerical studies. Results show that the two contracts are mathematically equivalent under cooperative contracting schemes. The proposed mechanisms coordinate the dual competing channels, improve supply chain efficiency, and achieve Pareto improvements among channel participants. Especially when the two competing products are highly substitutable in the market, the system-wide profit increment is significant by applying the contracting schemes in the decentralised setting.

Keywords:

• reversed supply chain
• closed-loop supply chain
• game theory
• channel coordination
• revenue-sharing
• bargaining power

Acknowledgements

The authors would like to thank the associate editor and the two anonymous reviewers for their constructive comments that have significantly improved the quality of the paper. We also thank Ms. Yi-Ting Hsu for her help in the preparation of the manuscript.

Additional information

Funding

This work was partially supported by the National Science Council of Taiwan [grant number NSC101-2410-H-008-009-MY3], [grant number NSC102-2410-H-008-048-MY2].

Notes on contributors

Jen-Ming Chen

Jen-Ming Chen is a professor in the Institute of Industrial Management at the National Central University (Taiwan). He received his MS degree in industrial engineering from the University of Arizona, in 1988, and his PhD degree in industrial engineering from Pennsylvania State University, in 1992. His research interests include inventory management, channel coordination, pricing and revenue management, and closed-loop supply chain management. He is an active member of several professional organisations, including Informs, DSI, and IIE. Dr Chen is a recipient of the George B. Dantzig Dissertation Award from the Informs and also a recipient of the IIE Doctoral Dissertation Award, for the year 1994.

Chia-I Chang

Chia-I Chang is a PhD student of the Industrial Management Institute at the National Central University of Taiwan. His research interests include supply chain management, reversed logistics, and closed-loop supply chain management.