Skip to main content
SpringerLink
Log in

Cost–Revenue Sharing in a Closed-Loop Supply Chain

  • Chapter
  • First Online:
Advances in Dynamic Games

Part of the book series: Annals of the International Society of Dynamic Games ((AISDG,volume 12))

Abstract

We consider a closed-loop supply chain (CLSC) with a single manufacturer and a single retailer. We characterize and compare the feedback equilibrium results in two scenarios. In the first scenario, the manufacturer invests in green activities to increase the product-return rate while the retailer controls the price. A Nash equilibrium is sought. In the second scenario, the players implement a cost–revenue sharing (CRS) contract in which the manufacturer transfers part of its sales revenues, and the retailer pays part of the cost of the manufacturer’s green activities program that aims at increasing the return rate of used products. A feedback-Stackelberg equilibrium is adopted, with the retailer acting as the leader. Our results show that a CRS is successful only under particular conditions. While the retailer is always willing to implement such a contract, the manufacturer is better off only when the product return and the remanufacturing efficiency are sufficiently large, and the sharing parameter is not too high.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 84.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Hardcover Book
USD 109.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Notes

  1. 1.

    What we have in mind here is similar to cooperative advertising programs, where typically, a manufacturer pays part of the cost of promotion and advertising activities conducted locally by its retailers. Cooperative advertising programs have been studied in the marketing literature, in a static setting (e.g., [4, 5, 36]), as well as in a dynamic context (e.g., [32–34]).

  2. 2.

    The assumption of infinite-planning horizon is mainly for tractability.

  3. 3.

    To illustrate, the remanufacturing sector in the US has reached over $53 billion in sales, and includes over 70,000 firms and 480,000 employees [28]. Large retailers can have return rates in excess of 10 % of sales, and manufacturers, such as Hewlett-Packard, report product returns that exceed 2 % of total outbound sales [3]. Xerox practices asset recovery and remanufacturing for its photocopiers and toner cartridges in the US and abroad; it estimates its total cost-savings at over $20 million per year [40]. The company saves 40–65 % in manufacturing costs through the re-use of parts and materials [22]. Kodak collects almost 60 % of the single-use cameras it sells worldwide and satisfies 58 % of its demand with cameras containing re-used components and almost 80 % of the materials may be re-used [21, 26].

  4. 4.

    Think of \(A\left(t\right)\) as a composite index of the green activities.

  5. 5.

    We ran other simulations without noticing any significant qualitative changes in the results.

References

  1. Aras, N., Boyaci, T., Verter, V.: The effect of categorizing returned products in remanufacturing. IIE Trans. 36(4), 319–331 (2004)

    Article  Google Scholar 

  2. Atasu, A., Guide, V.D.R., Van Wassenhove, L.N.: Product reuse economics in closed-loop supply chain research. Prod. Oper. Manage. 17(5), 483–497 (2008)

    Article  Google Scholar 

  3. Atasu, A., Sarvary, M., Van Wassenhove, L.N.: Remanufacturing as a marketing strategy. Manage. Sci. 54(10), 1731–1746 (2008)

    Article  Google Scholar 

  4. Berger, M.: Vertical cooperative advertising ventures. J. Marketing Res. 9, 309–312 (1972)

    Article  Google Scholar 

  5. Bergen, M., John, G.: Understanding cooperative advertising participation rates in conventional channels. J. Marketing Res. 46, 357–369 (1997)

    Article  Google Scholar 

  6. Bhattacharya, S., Guide, V.D.R., Van Wassenhove, L.N.: Optimal order quantities with remanufacturing across new product generations. Prod. Oper. Manage. J. 15(3), 421–431 (2006)

    Article  Google Scholar 

  7. Cachon, G.P., Lariviere, M.A.: 2005. Supply chain coordination with revenue sharing contracts: strength and limitations. Manage. Sci. 51, 30–44 (2005)

    MATH  Google Scholar 

  8. Corbett, C.J., Savaskan, R.C.: Contracting and coordination in closed-loop supply chains. In: Daniel, V., Guide, R., Van Wassenhove, L.N. (eds.) Business Aspects of Closed-Loop Supply Chains: Exploring the Issues. Carnegie Mellon University Press, Pittsburgh (2003)

    Google Scholar 

  9. Dana, Jr., J.D., Spier, K.E.: Revenue sharing and vertical control in the video rental industry. J. Ind. Econ. 49(3), 223–245 (2001)

    Article  Google Scholar 

  10. Debo, L.G., Toktay, L.B., Van Wassenhove, L.N.: Market segmentation and product technology selection for remanufacturable products. Manage. Sci. 51, 1193–1205 (2005)

    Article  Google Scholar 

  11. Dekker, R., Fleischmann, M., Van Wassenhove, L.N. (eds.) Reverse Logistics: Quantitative Models for Closed-Loop Supply Chains. Springer, Berlin (2004)

    Google Scholar 

  12. El Ouardighi, F., Jørgensen, S., Pasin, F.: A dynamic game of operations and marketing management in a supply chain. Int. J. Game Theory Rev. 34, 59–77 (2008)

    Google Scholar 

  13. Ferguson, M.E., Toktay, L.B.: The effect of competition on recovery strategies. Prod. Oper. Manage. 15(3), 351–368 (2006)

    Article  Google Scholar 

  14. Ferrer, G., Swaminathan, J.M.: Managing new and remanufactured products. Manage. Sci. 52(1), 15–26 (2006)

    Article  Google Scholar 

  15. Ferrer, G., Whybark, C.: Material planning for a remanufacturing facility. Prod. Oper. Manage. 10, 112–124 (2001)

    Article  Google Scholar 

  16. Fleischmann, M., Beullens, P., Bloemhof-Ruwaard, J., Van Wassenhove, L.N.: The impact of product recovery on logistics network design. Prod. Oper. Manage. 10(2), 156–173 (2001)

    Article  Google Scholar 

  17. Fleischmann, M., Bloemhof-Ruwaard, J., Dekker, R., van der Laan, E., Van Wassenhove, L.N.: Quantitative models for reverse logistics: a review. Eur. J. Oper. Res. 103, 1–17 (1997)

    Article  MATH  Google Scholar 

  18. Fleischmann, M., van Nunen, J., Grave, B.: Integrating closed-loop supply chain and spare parts management at IBM. ERIM Report Series Research in Management, ERS-2002-107-LIS (2002)

    Google Scholar 

  19. Geng, Q., Mallik, S.: Inventory competition and allocation in a multi-channel distribution system. Eur. J. Oper. Res. 182(2), 704–729 (2007)

    Article  MATH  Google Scholar 

  20. Gerchak, Y., Wang, Y.: Revenue-sharing vs. wholesale-price contracts in assembly systems with random demand. Prod. Oper. Res. 13(1), 23–33 (2004)

    Google Scholar 

  21. Geyer, R., Van Wassenhove, L.N., Atasu, A.: The economics of remanufacturing under limited component durability and finite product life cycles. Manage. Sci. 53(1), 88–100 (2007)

    Article  MATH  Google Scholar 

  22. Ginsburg, J.: Once is ot enough. Business Week, April 16 (2001)

    Google Scholar 

  23. Guide, Jr., V.D.R.: Production planning and control for remanufacturing: industry practice and research needs. J. Oper. Manage. 18, 467–483 (2000)

    Article  Google Scholar 

  24. Guide, Jr., V.D.R., Jayaraman, V., Linton, J.D.: Building contingency planning for closed-loop supply chains with product recovery. J. Oper. Manage. 21, 259–279 (2003)

    Article  Google Scholar 

  25. Guide, Jr., V.D.R., Van Wassenhove, L.N.: The evolution of closed-loop supply chain research. Oper. Res. 57(1), 10–18 (2009)

    Article  MATH  Google Scholar 

  26. Guide, Jr., V.D.R., Van Wassenhove, L.N.: Managing product return for remanufacturing. Prod. Oper. Manage. 10(2), 142–155 (2001)

    Article  Google Scholar 

  27. Guide, Jr., V.D.R., Souza, G.C., Van Wassenhove, L.N., Blackburn, J.D.: Time of value of commercial product returns. Manage. Sci. 52(8), 1200–1214 (2006)

    Article  MATH  Google Scholar 

  28. Hauser, W.M., Lund, R.T.: The Remanufacturing Industry: Anatomy of Giant. Boston University, Boston (2003)

    Google Scholar 

  29. He, X., Prasad, A., Sethi, S.: Cooperative advertising and pricing in a dynamic stochastic supply chain: feedback Stackelberg strategies. Prod. Oper. Manage. 18, 78–94 (2009)

    Google Scholar 

  30. Hussain, S.S.: Green consumerism and ecolabelling: a strategic behavioural model. J. Agric. Econ. 51(1), 77–89 (2000)

    Article  Google Scholar 

  31. Ingene, C.A., Parry, M.E.: Mathematical Models of Distribution Channels. Kluwer Academic, Dordrecht (2004)

    Google Scholar 

  32. Jørgensen, S., Sigué, S.P., Zaccour, G.: Dynamic cooperative advertising in a channel. J. Retail. 76(1), 71–92 (2000)

    Article  Google Scholar 

  33. Jørgensen, S., Sigué, S.P., Zaccour, G.: Stackelberg leadership in a marketing channel. Int. Game Theory Rev. 3(1), 13–26 (2001).

    Article  MathSciNet  Google Scholar 

  34. Jørgensen, S., Taboubi, S., Zaccour, G.: Retail promotions with negative brand image effects: is cooperation possible? Eur. J. Oper. Res. 150, 395–405 (2003)

    Article  Google Scholar 

  35. Jørgensen, S., Zaccour, G.: Differential Games in Marketing. International Series in Quantitative Marketing. Kluwer Academic, Boston, MA (2004)

    Book  Google Scholar 

  36. Karray, S., Zaccour, G.: Could co-op advertising be a manufacturer’s counterstrategy to store brands? J. Bus. Res. 59, 1008–1015 (2006)

    Article  Google Scholar 

  37. Kodak: Corporate Environmental Annual Report. The Kodak Corporation, Rochester (1999)

    Google Scholar 

  38. Krikke, H., Le Blanc, I., van de Velde, S.: Product modularity and the design of closed-loop supply chains. Calif. Manage. Rev. 46(2), 23–39 (2004)

    Article  Google Scholar 

  39. Majumder, P., Groenevelt, H.: Competition in remanufacturing. Prod. Oper. Manage. 10, 125–141 (2001)

    Google Scholar 

  40. Mantovalli, J.: The producer pays. Environ. Mag. 8(3), 36–42 (1997)

    Google Scholar 

  41. Muller, E., Peles, Y.C.: Optimal dynamic durability. J. Econ. Dyn. Control 14(3–4), 709–719 (1990)

    Article  MATH  Google Scholar 

  42. Ray, S., Boyaci, T., Aras, N.: Optimal prices and trade-in rebates for durable, remanufacturable products. Manuf. Serv. Oper. Manage. 7(3), 208–228 (2005)

    Article  Google Scholar 

  43. Savaskan, R.C., Bhattacharya, S., Van Wassenhove, L.N.: Closed loop supply chain models with product remanufacturing. Manage. Sci. 50, 239–252 (2004)

    Article  MATH  Google Scholar 

  44. Savaskan, R.C., Van Wassenhove, L.N.: Reverse channel design: the case of competing retailers. Manage. Sci. 52(1), 1–14 (2006)

    Article  MATH  Google Scholar 

  45. Talbolt, S., Lefebvre, E., Lefebvre, L.A.: Closed-loop supply chain activities and derived benefits in manufacturing SMEs. J. Manuf. Technol. Manage. 18(6), 627–658 (2007)

    Article  Google Scholar 

Download references

Acknowledgements

We wish to thank the anonymous reviewer for his/her very helpful comments. Research supported by NSERC, Canada.

Author information

Authors and Affiliations

  1. Department of Information, Logistics and Innovation, VU University Amsterdam, de Boelelaan 1105, 3A-31, 1081 HV, Amsterdam, The Netherlands

    Pietro De Giovanni

  2. GERAD, HEC Montréal, 3000, chemin de la Côte-Sainte-Catherine, Montréal, QC, H3T 2A7, Canada

    Georges Zaccour

Authors
  1. Pietro De Giovanni
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Georges Zaccour
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Pietro De Giovanni .

Editor information

Editors and Affiliations

  1. , CEREMADE, Université Paris-Dauphine, Place du Maréchal de Lattre de Tassigny, Paris, 75775, France

    Pierre Cardaliaguet

  2. Wilfrid Laurier University, University Ave W 75, Waterloo, N2L 3C5, Ontario, Canada

    Ross Cressman

Rights and permissions

Reprints and permissions

Copyright information

© 2013 Springer Science+Business Media New York

About this chapter

Cite this chapter

De Giovanni, P., Zaccour, G. (2013). Cost–Revenue Sharing in a Closed-Loop Supply Chain. In: Cardaliaguet, P., Cressman, R. (eds) Advances in Dynamic Games. Annals of the International Society of Dynamic Games, vol 12. Birkhäuser, Boston, MA. https://doi.org/10.1007/978-0-8176-8355-9_20

Download citation

Publish with us

Policies and ethics

Search

Navigation