On the influence of collection cost on reverse channel configuration
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On the influence of collection cost on reverse channel configuration Jochen Gönsch1 · Nora Dörmann2
© The Author(s) 2020
Abstract This paper revisits the impact of collection cost on a manufacturer’s optimal reverse channel choice. A manufacturer who remanufactures his own products has the choice between managing collection of used products himself, let the retailer manage collection or involve a third party company to manage collection. In particular, we consider a convex collection cost function depending on the collection rate. Contrary to previous literature, we show that the manufacturer always prefers retailer-managed collection, independent of collection cost. The retailer will always choose a positive collection rate. If collection cost is above a certain threshold, not all used products will be collected and the manufacturer (almost) collects all channel profits. Third party-managed collection is always dominated. In extensions, we also consider a restriction to equilibria and a minimum collection rate, which may be imposed by regulation. Both extensions may change the reverse channel choice to manufacturer-managed. Moreover, we see that it may be impossible for regulation to increase collection because the profit-maximizing collection rate may already be the highest economically viable one. Keywords Closed-loop supply chain · Reverse logistics · Remanufacturing · Channel choice JEL classification M10
* Jochen Gönsch jochen.goensch@uni‑due.de Nora Dörmann nora.doermann@uni‑due.de 1
Mercator School of Management, University of Duisburg-Essen, Lotharstraße 65, 47057 Duisburg, Germany
2
Faculty of Physics, University of Duisburg-Essen, Lotharstraße 1, 47057 Duisburg, Germany
13
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J. Gönsch, N. Dörmann
1 Introduction Today, the importance of the environmental performance of products and processes for sustainable manufacturing is widely recognized. Legislation in economic areas like Europe, North America, and Japan encourages this awareness, and many companies also take proactive measures. Accordingly, remanufacturing has become increasingly popular. The remanufacturing process starts with the reclamation of used products. Mostly, they are then disassembled, cleaned and inspected. Depending on the quality of the used products, some spare parts may be added and, finally, they are reassembled to “like-new” products (see, e.g., Lund and Hauser 2010). In doing so, manufacturers are establishing economically viable production and distribution/collection systems that enable remanufacturing of used products in parallel with the manufacturing of new products. In this paper, we consider products with no distinction between new and remanufactured products, and we refer to the combination of (re-)manufacturing and distribution/collection system as closed-loop supply chain. In practice, three major reverse channel configurations are observed (see, e.g., Savaskan et al. 2004). First, some manufacturers like Canon, Hewlett-Packard, and Xerox collect their used products directly from custome
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