Integrating dual-channel closed-loop supply chains: Forward, reverse or neither?

Abstract

This paper investigates the optimal supply chain integration strategy for the manufacturer in a stylised dual-channel closed-loop supply chain (CLSC) consisting of one manufacturer, one retailer, and one recycler. As the leader, the manufacturer intends to improve the efficiency and competitiveness of its supply chain by integrating one of the other entities. Specifically, the manufacturer can choose one of three strategies: forwardly integrating the retailer, reversely integrating the recycler, or integrating neither. Among the strategies, no integration serves as a benchmark that helps to identify whether the manufacturer has incentives to integrate. We first disclose that supply chain integration in whichever direction always offers an incentive. Then, we find that reverse integration generates more industry profit than forward integration if the recycler collects used products at a high efficiency or if the manufacturer saves a great deal from remanufacturing, i.e., the reallocation effect dominates the relief effect. We also explore profit increases to evaluate supply chain integration and identify conditions in which reverse integration brings more profit increases. Our results bridge the gap between business practices and the theoretical exploration of integrating dual-channel CLSCs and extend the understanding of this problem by disclosing that forward integration does not always dominate.