Environmentally responsible closed-loop supply chain models with outsourcing and authorization options

Abstract

Remanufacturing is a common production mode for firms taking part in sustainable operations and the circular economy because it can improve environmental performance, especially via third-party remanufacturing. This paper studies third-party remanufacturing by developing game models for a closed-loop supply chain with one manufacturer and one third-party remanufacturer. Here the manufacturer has two strategies for third-party remanufacturing: outsourcing and authorization. The third-party remanufacturer collects end-of-life products to produce remanufactured products. Unlike the extant literature, this paper takes environmentally responsible behaviors of consumers and firms into consideration and focuses on how green consumption behavior and environmentally responsible behavior affect the manufacturer’s strategy. It finds that when a large gap exists between green consumer preferences for new and remanufactured products, both the manufacturer and the third-party remanufacturer prefer authorization; otherwise, they prefer outsourcing. In addition, it is difficult for them to select the same strategy for third-party remanufacturing when the environmental cost (the cost of not collecting end-of-life products) is high. However, they can reach an agreement in outsourcing scenario in the case of sequentially identical game.