Environmentally responsible closed-loop supply chain models for joint environmental responsibility investment, recycling and pricing decisions

Abstract

With the gradual improvement of international treaties, fulfilling corporate environmental responsibility (CER) has evolved into an important strategy for the survival and development of firms. Effectively integrating environmental responsibility into supply chain management has gradually become the focus of scholars and practitioners in light of international competitive challenges. Under the Stackelberg game setting, this study develops quantitative models of two-echelon environmentally responsible closed-loop supply chains (CLSCs) to investigate joint environmental responsibility investment, pricing and collection rate decisions. Considering that demand is sensitive to price and environmental investment, the optimal decisions under the centralized and decentralized scenarios are determined. The analysis shows that corporate environmental responsibility investment is directly proportional to the collection rate and retail price. To identify the best reverse channel structure of environmentally responsible CLSCs, this study proposes three possible decentralized reverse channels, manufacturer-led collection, retailer-led collection and third-party-led collection. The findings reveal that the recycling strategy of third-party-led collection is disadvantageous, and the comparison between manufacturer-led collection and retailer-led collection is determined by transfer price. More precisely, if the transfer price exceeds the average collection profits per used product, the reverse channel structure that the retailer leading is optimal, and otherwise, manufacturer involvement in collection is optimal. Revenue sharing contract through bargaining is an effective coordination scheme to resolve channel conflicts, which shows that the split of surplus profits depends on the negotiation powers of channel members. In addition, this study also shows that retailer-led collection is optimal in the special case that the collection target is imposed by take-back legislations. This study merges corporate environmentally responsible, closed-loop supply chains, and channel coordination strands and contributes to the burgeoning field of environmentally responsible closed-loop supply chains.