Production decisions of a closed-loop supply chain considering remanufacturing and refurbishing under government subsidy

Abstract

Remanufacturing and refurbishing, as two essential strategies in the sector of reverse logistics, play a vital role in the area of sustainable development. With the increasing concerns on the environment friendly supply chain by the general public, we construct two remanufacturing models dominated by the original equipment manufacturer (OEM) and the independent remanufacturer (IR) based on the auto parts market which provides new products, remanufactured products and refurbished products. Considering the remanufacturing subsidy and the market environment parameters, we analyze the full-remanufacturing and partial-remanufacturing using the Stackelberg and Cournot duopoly game models. We then obtain the equilibrium strategies for each of these scenarios. We further carry out sensitivity analysis for the two remanufacturing models and investigate the impact of the remanufacturing subsidy on these two models. The findings in this paper enable us to compare the remanufacturing modes and show how the equilibrium outcome depends on the key model parameters. In the comparison and numerical analysis, they are revealed that (i) the improvement on the quality level of the refurbished products is always unfavorable to the quality level and the production quantity of both the new and the remanufactured products, especially in the OEM remanufacturing model; (ii) subsidy is ineffective in the IR remanufacturing mode when the remanufacturing cost is low; (iii) the IR remanufacturing outperforms the OEM remanufacturing in both economic benefits and social welfare, when the cost of remanufacturing and the customer willingness to pay for remanufacturing products are low, and the quality of refurbished products is high. These findings have potential implications for enterprise remanufacturing production and government policy-making in complex market environments.