Impact of reverse channel competition, individual rationality, and information asymmetry on multi-channel closed-loop supply chain design

Abstract

Original equipment manufacturers (OEM) are focusing on remanufactured product business to improve their profitability and are using a multi-channel recollection strategy to improve recollection efficiency. Motivated by this phenomenon, we study a closed-loop supply chain consisting of an OEM, a retailer and a third-party vendor (3V) where the OEM designs an efficient multi-channel recollection structure when recollection agents competitively recollect used products. We analyze three different return channel structures under simultaneous influence of competition, collection efficiencies, individual rationality and information asymmetry. Our key findings are as follows: (i) OEM employs multiple recollection agents only if the recollection competition is low, (ii) OEM’s profit level is maximum when it recollects used products with one external agent (either a 3V or a retailer), (iii) with individual rationality constraint, there exist threshold cost values for both the OEM and retailer below which they do not trade and these values increase in consumer’s valuation of remanufactured products, (iv) OEM improves profitability by gathering information about external recollection agent’s cost coefficient; if the OEM engages only external agents for recollection, then the value of this information is zero, (v) when both competition and recollection cost are low, OEM prefers to recollect with one external agent and when recollection cost is high, OEM completely outsources recollection. We test the robustness of our findings by studying the influence of various channel coordinating contracts on the forward and reverse channels and the influence of quality and quantity dependent transfer pricing on the design of the multi-channel recollection.