Revenue sharing coordination in reverse logistics

A reverse supply chain, as a post-consumption activity, aims at extracting value from products at the end of their life cycle. It could be comprised of reusing, refurbishing, remanufacturing, and recycling activities. In this paper, we revisit the issue of revenue sharing in reverse supply chains to formulate the decision problems of coordinating parties, manufacturer and retailer. The coordination is formed in a dynamic setting, where a feedback relationship exists between the return incentive policy of the retailer, and the revenue sharing incentive strategy of the manufacturer. To model this process, we have adopted the use of a system dynamics (SD) approach. SD is well suited for studying the behavior of complex systems over time, and where internal feedbacks and delays exist. We first identify Pareto-optimal solutions, for individual players, and from environmental perspectives of landfill diversion and carbon offset. We then focus on revenue sharing, as a widely practiced coordination scheme in reverse supply chains. It resembles a leader-follower (Stackelberg) strategic decision-making game, with an equilibrium solution that yields lower performance for environmental criteria. In this context, we investigate if/how a revenue sharing mechanism can be coordinated to achieve a higher environmental performance.