Collection disruption management and channel coordination in a socially concerned closed-loop supply chain: A game theory approach

Abstract

Uncertainty in real-world situations disrupts operations, including the collection process in closed-loop supply chains (CLSCs). A collection disruption is more critical in the pharmaceutical sector since pharmaceutical leftovers contain chemicals that threaten the environment and human health. This paper revolves around the challenges of a real pharmaceutical case that implements circular economy principles through a closed-loop system design, takes sustainability issues into account, and seeks for effective management of collection disruption. The case includes a manufacturer, who invests in green research and development (R&D), and two retailers competing on corporate social responsibility (CSR) efforts to boost the collection amount and market demand. This competitive environment raises conflict of interests and complicates the interactions between members, which need to be neutralized by an appropriate coordination plan. This paper proposes an analytical scenario-based coordination model that resolves channel conflicts and pays dividends to the involving members through augmenting their social, economic, and environmental performance. We show that the coordination plan could be a practical policy to increase the system’s adaptability to disruption. Under the coordinated model, by increasing a retailer’s collection disruption, the other one invests more in CSR efforts to compensate for its competitor’s lower collection, preventing loss for the whole channel. We also demonstrate that the proposed model maintains the chain’s balance and prevents loss in case of a highly competitive CSR-based collection and boosts the collection amount, market demand, and the whole chain’s profitability simultaneously.