Closed-Loop Supply Chain Coordination under a Reward–Penalty and a Manufacturer’s Subsidy Policy

Abstract

Government legislation significantly impacts closed-loop supply chain (CLSC) operations. This study examines the collection rate of and decisions on the product greening improvement level in a three-level CLSC with the government’s reward–penalty and a manufacturer’s subsidy policy. Four game-theoretic models are analyzed in order to evaluate the ways in which the policy and revenue-sharing contracts (RSCs) between the manufacturer and retailer affect the CLSC members’ optimal decisions and profits. We found that a reward–penalty and subsidy policy raise the collection rate, as well as the product greening improvement level. A manufacturer’s financial conflict of interest can be mitigated using RSCs. The RSCs between the manufacturer and the retailer also increase the profit of a recycling company that successfully coordinates the CLSC. An interesting result is that, when the RSCs are used under the subsidy policy, the collection rate is higher than it is in a centralized model. We also found that the subsidy level needs to be adjusted according to the price of the recycling resources, and that increasing the value of the recyclable resources and lowering the recycling costs in the early stages of the supply chain collaboration could lead to higher environmental sustainability. These results illustrate that using an RSC can effectively coordinate the CLSC, and can thus help policy implementation by governments.