Remanufacturer’s downstream encroachment and incumbent brand’s order shifting in Pareto improvement of economic and environmental sustainability

Abstract

In the recent years, supported by Industry 4.0 techniques and government’s strict quality supervision, remanufactured components can be of high quality “as good as new”. This encourages the supplier of remanufactured components to develop self-branded business and encroach on downstream market to compete with the incumbent brand. In this paper, we build a three-player game-theoretical model to investigate the pros and cons of the remanufactured component supplier’s (Supplier R’s) downstream encroachment, under the incumbent brand’s single sourcing and order shifting strategies, respectively. We formulate Supplier R’s nonlinear remanufacturing cost depending on the random quality of the collected components, based on which we find the incumbent brand’s weak brand advantage will induce Supplier R’s downstream encroachment. We also find that the incumbent brand’s order shifting helps save Supplier R’s remanufacturing cost and hence, limits Supplier R’s downstream encroachment. Regarding the environmental sustainability, we use two indexes to measure it and show that there exist opportunities of Pareto improvement of economic and environmental sustainability for the supply chain system.