Contract coordination of dual channel reverse supply chain considering service level

Abstract

In China, the success of the dual-channel reverse supply chain (DRSC) with online and offline recycling channels has attracted extensive attention from academia. As the builder of online channels and the leader of DRSC, the recycling center needs to optimize its pricing and service decisions to maximize its own profits. Furthermore, the recycling center also needs to build a contract with third-party recycler (TPR) to improve the profit of TPR and finally achieve the overall coordination of the supply chain. This paper first constructs Stackelberg game model under centralized and decentralized decision-making respectively for the DRSC with recycling center and TPR, and obtains their optimal decisions and maximum profit. Then, in order to optimize the benefits of supply chain members under decentralized decision-making, a revenue sharing contract between the recycling center and TPR is constructed. Finally, the example analysis is made to test the model. The results show that with the increase of consumers’ preference for online channels, the profit of the recycling center and the supply chain system will increase, while the profit of TPR will decrease. Specifically, the recycling center needs to reduce the online recycling price, improve the service level and offline transfer price to ensure its maximum profit. In addition, the contract can make the profit of recycling enterprises always not lower than that under decentralized decision-making. Under this contract, the profit sharing factor is positively related to the profit of the recycling center and negatively related to the profit of TPR.