Procurement and coordination under imperfect quality and uncertain demand in reverse mobile phone supply chain

Abstract

The extremely short life cycles and rapid advent of new technologies are placing used phones at the forefront of reverse supply chain management. This research focuses on the incentive mechanisms in a supply chain of used mobile phones that are still usable and thus can be sold at a lower price to secondary markets where customers are more price-sensitive. Through an in-depth case study, we first explored the second-hand mobile phone supply chain structure and operational procedure. Then we investigated and compared two different incentive strategies between a take-back enterprise (referred to as a “distributor”) and a supplying firm with large quantities of used phones (referred to as a “supplier”), namely quantity discount scheme and coordinated quality improvement. The optimal order quantities and/or quality improvement levels are analyzed in both decentralized and centralized settings. Our results show that the quantity discount scheme may result in a centralized optimization, while the quality improvement scheme could benefit the entire supply chain when the initial imperfect ratio is not low. Moreover, the value of quality improvement decreases with the demand uncertainty under a decentralized system but increases in a centralized supply chain. This research provides an effective tool and guideline for evaluating different procurement and incentive strategies in reverse mobile supply chain management.