Managing Supplier-Manufacturer Closed-Loop Supply Chain Considering Product Design and Take-Back Legislation

Abstract

Facing a growing amount of waste electrical and electronic equipment (WEEE), a recent recast of the WEEE directive has put a specific reuse target for manufacturers, aiming to reduce environmental pollution and incentivize a green product design. In this paper, in order to examine whether the above two goals can be achieved by setting a specific reuse target, we have modelled a closed-loop supply chain consisting of a supplier (the leader) and a manufacturer (the follower) with the constraint of a mandated remanufacturing target. In this model, the supplier determines the level of interchangeability in product design and the wholesale price of the key component. The manufacturer buys the key components from the supplier and makes production and remanufacturing decisions under the requirement of a mandated remanufacturing target. We have investigated the supply chain’s members’ optimal decisions and analyzed the impact of the mandated remanufacturing target on the optimal profits of the supply chain’s members and consumer surplus, and finally, we have explored the environmental implications of the mandated remanufacturing target. We found that the supply chain’s members’ optimal decisions are affected by the mandated remanufacturing target and the cost of the new component. In terms of the economic implications of the mandated remanufacturing target, we have demonstrated that the increase in the mandated remanufacturing target has negative effects on the profits of the supply chain’s members and consumer surplus. Regarding the goal of incentivizing green product design, we found that the mandated remanufacturing target cannot always incentivize the supplier to implement product design that is beneficial to remanufacturing. From the perspective of the environment, we further indicate that more stringent mandated remanufacturing targets may bring an undesirable environmental outcome.