A novel buy-back contract coordination mechanism for a manufacturer-retailer circular supply chain regenerating expired products

Abstract

The expiration of many deteriorative products imposes high costs on the supply chain. A new strategy is proposed in this paper that integrates technological capabilities and supply chain management initiatives to overcome this challenge. The technological capabilities equip the supply chain with a regenerative process to reuse the expired products in other products. On the other hand, to facilitate and optimize the application of the technology, the integration and coordination techniques of the supply chain are employed. This innovation is in accordance with the zero-waste concept arising in the circular economy era and circular supply chain. The paper focuses on integrating a supply chain consisting of one retailer and one manufacturer and developing a new buy-back coordination mechanism to provide enough incentives for the cooperation of members and encourage them to participate in the regenerating operations. It is proved that the proposed strategy is economically feasible if and only if the revenue of each unit of reused product in addition to the saving on its disposing cost, is greater than its reprocessing cost. Furthermore, it is shown that an integrated supply chain equipped with the mentioned technology earns more than one that only benefits the integrated decisions of the whole supply chain. The efficacy and intricacy of the developed model are validated in a dairy supply chain that revalues expired products by turning them into a type of fertilizer. Moreover, a thorough sensitivity analysis of the paper indicates that the mean and standard deviation of demand positively encourage the cooperation strategy while the replenishment cycle time has adverse effects on the profitability of members.