A Sustainability Analysis on Retailer’s Sales Effort in A Closed-Loop Supply Chain

Abstract

With the development of the Internet, many brand name manufacturers including Apple, Lenovo, and Canon offer remanufactured products through their official website. Confronting the competition from remanufactured products that are available from the manufactured-owned channel, more and more retailers have recognized that customer service level is one of the most important performance metrics and have aggressively attempted to obtain larger market shares by providing high levels of post-sale services. Although numerous researchers have studied various competitive strategies in remanufacturing, to the best of our knowledge, there is little research highlighting whether and how economic performance and sustainability issues related to remanufacturing operations are affected by the retailer’s service levels. In this paper, we fill this gap by developing two models for the closed-loop supply chain where all remanufactured products are available from the manufactured-owned channel, while the equilibrium behavior of the retailer can be characterized under two possible scenarios: (1) Confronting the cannibalization from direct channels where the retailer only responds on prices (i.e., Model P); or (2) on providing competitive prices and high service levels for new products (i.e., Model S). Our analysis suggests that, from managers’ perspective, if the manufacturers care more about economic benefits, encouraging the retailer to provide higher levels of post-sale services is a beneficial strategy. If they are more concerned with environmental performance, Model P is preferred. However, from the angle of environmental groups and agencies, if the level of eco-centrism is too pronounced, though Model S has a greater profitability for both parties, a more significant welfare loss due to environmental hazard is perceived by the society. As a result, besides avoiding indulging in overproducing on new products, environmental groups and agencies should take emissions trading or taxation into consideration to stimulate remanufacturing operations.