The Optimal Combination between Recycling Channel and Logistics Service Outsourcing in a Closed-Loop Supply Chain Considering Consumers’ Environmental Awareness

Abstract

In the closed-loop supply chain, many suppliers opt for self-recycling or entrust retailers to recycle. Under both recycling channels, the member responsible for recycling can undertake or outsource logistics services. This paper investigates how consumers’ environmental awareness and recycling cost-saving affect the optimal combination of recycling channel and logistics-service strategy. To this end, we mathematically formulate the supplier-led Stackelberg game theoretical-framework, and apply the Karush–Kuhn–Tucker conditions for constrained optimization. We examine the optimal combination under the impact of consumers’ environmental awareness and recycling cost-saving on profits, environmental impact and social welfare, using numerical analysis. Results demonstrate that as consumers’ environmental awareness and recycling cost-saving remain at a higher level, the supplier and retailer will both achieve maximum profits when the supplier entrusts the retailer to recycle and the retailer undertakes the logistics services. Meanwhile, the third party will choose to be entrusted with services by the supplier, rather than the retailer. To improve supply-chain performance, the retailer should assume social responsibility to recycle and build the logistics-service system.