Sourcing from risky reverse channels: Insights on pricing and resilience strategies in sustainable supply chains

Abstract

This study examines the resilience and sustainability of supply chains amid global disruptions, with a particular focus on the essential role of reverse logistics. Through a game-theoretic approach, we explore manufacturer decisions to source from either reliable but expensive raw materials or cost-effective yet riskier recycled or recyclable materials from the reverse logistics channel. Our analysis outlines three primary sourcing strategies: sourcing exclusively from suppliers (SS), sourcing solely through retailer reverse channel (RS), and a balanced dual sourcing (DS) approach. Our findings reveal the economic viability that recycling outsourcing is influenced by market demand and disruption risks. Notably, in scenarios of constrained market potential, the cost advantage of using recycled materials from less reliable reverse logistics channels surpasses the risks associated with supply chain disruptions, suggesting a complex cost-benefit landscape amidst supply uncertainties. Moreover, the stability of suppliers emerges as a pivotal factor in strategic sourcing decisions, underscoring the need to consider both economic efficiencies and supply reliability. The study also evaluates the dynamic competition between manufacturers and retailers, shedding light on how strategic adjustments driven by sustainability and resilience goals can enhance profitability and sustainability. It was found that despite the threat of disruptions, manufacturers benefit more from engaging with risky reverse channels under specific conditions, underscoring the nuanced decision-making required in uncertain supply scenarios. This research advances sustainable supply chain management by highlighting strategic complexities and the need for understanding economic efficiencies and supply stability, offering insights for navigating disruptions and fostering resilient, sustainable supply chains.