Managing Sales Channel Selection for a Manufacturer in the Presence of Remanufacturing

Abstract

Motivated by the fact that the product remanufacturing operations are increasingly performed as firms’ competitive advantage and may also play an important role in the choice of channel structure, we construct game-theoretical models to examine the manufacturer’s optimal sales channel strategy in a closed-loop supply chain (CLSC), in which the manufacturer is responsible for used product recycling and remanufacturing and the retailer operates a traditional retail channel. We show that the manufacturer’s optimal sales channel selection depends on the customers’ acceptance of the direct channel and the remanufacturing efficiency. Specifically, in the centralized system, the manufacturer would prefer the dual-channel strategy rather than either the exclusive direct or retail channel, and becomes more willing to introduce a direct channel as the remanufacturing cost savings increase. However, in a decentralized system, there exists a Pareto improvement zone where both the manufacturer and the retailer are better off in the dual-channel format, and the increasing remanufacturing efficiency spills over to the retailer via a lower wholesale price and thus a higher retail demand. Moreover, we extend the study to the retailer-collecting mode and demonstrate that the main results of the original model remain robust.

Keywords

Remanufacturing / closed-loop supply chain (CLSC) / dual-channel / sales channel selection / game theory

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