Environmental collaboration in a closed-loop supply chain with a reverse revenue sharing contract

Abstract

We consider a closed-loop supply chain (CLSC) with a single manufacturer and a single retailer who invest in green advertising to build up the goodwill dynamic. The latter has a dual purpose. On one hand, it leads to higher sales and plays the traditional role of marketing tool. On the other hand, it increases the return rate, playing the role of an operational tool. The players evaluate the convenience of collaborating in a CLSC (collaborative remanufacturing) by pursuing both marketing and operational targets implementing a Reverse Revenue Sharing Contract (RRSC). Our findings suggest that green advertising should aim to increase customers’ knowledge and awareness about the return policy because collaboration is successful only when the returns’ residual value is large while the sharing parameter is not too high. Moreover, the inefficiencies that RRSC carries out limit substantially its adoption. A RRSC is payoff-Pareto-improving only in few cases. Finally, we highlight the limitations of previous research in supply chain contracting, which has disregarded the administrative costs of using a two-parameter contract; this lack of consideration leads to imprecise findings and managerial prescriptions.