Many researchers have discussed reverse logistics management for used products. Ross and Evans (2003) and Jenkins et al. (2003) introduce the importance for choosing appropriate recycling strategies which provide positive effect on environment. Investigating strategic planning of the reverse supply chains network includes Pochampally and Gupta (2003), Sarkis (2003), Hong et al. (2006). These papers introduce some issues about selecting the most economical product to reprocess, identifying potential facilities from a set of candidate recovery facilities, and solving facility location problems to achieve the right mix of logistics and quantities of goods. Many researches present the recycling systems in some industries such as the paper recycling industry (Pati et al. 2006, Pati et al. 2008) and the plastics recycling industry (Arena et al. 2003, Siddique et al. 2008). Other researchers study some recycling systems of electronic waste. Nagurney and Toyasaki (2005) and Hong et al. (2008) describe the behavior of the various decision-makers consisting of sources of electronic waste, recyclers, processors, as well as consumers associated with the demand markets for the distinct products in the model of reverse supply chain management of electronic waste.
Authorizing third-party firms such as transportation service providers or non-profit organizations to engage in recycling programs is a common option adopted by current industry practices. For example, GENCO, a third-party logistics company in North America, provides reverse logistics services that can decrease return processing cost-per-unit by 50 percent (GENCO 2008). Many researches show the importance of partnering with third-party logistics providers in reverse logistics process and help the third-party firms enter reverse logistics business (Krumwiede and Sheu 2002; Meade and Sarkis 2002).
Closed-loop supply chains including forward and reverse supply chains have been used by some companies for products recovery (Guide et al. 2003a, Guide et al. 2003b). Savaskan et al. (2004) introduce four types of closed-loop supply chain models with products
remanufacturing such as the centrally coordinated, manufacturer collection, retailer collection, and the third-party player collection models to compare the total supply chain profits and used products return rate among these various models. In Savaskan et al. (2004), the retailer collection model achieves the best performance of closed-loop channel in terms of profits and return rates. In the electronics industry, manufacturers usually purchase each component from other upstream firms. Then the recycled products are difficult to be remanufactured by those manufacturers. Therefore, cooperating with third-party firms to handle obsolete products is commonly used in current practices and would reduce associated processing costs.
In this study, we model recycling systems with closed-loop supply chains that incorporate the concept of retailer collection and cooperating with third-party players into our model. In these recycling models, we consider that there exists contract relationship between the manufacturers and the third-party players.
Contract design has been studied extensively in many aspects for decision making in supply chains. Giannoccaro and Pontrandolfo (2004) arrange different types of contract and list the comparison between those contracts including the quantity flexibility (QF) contracts, the backup agreements, the return policies, the incentive mechanisms, the revenue sharing (RS) contracts, the allocation rules, and the quantity discounts.
In the QF model, retailers commit to purchase no less than a certain percentage of the forecast and manufacturers guarantee to deliver up to a certain percentage above the forecast (Tsay 1999; Tsay and Lovejoy 1999; Sethi et al. 2004). Studies show that QF contracts reduce bullwhip effect, which means some variations would be amplified as moving upstream in a supply chain. Under a backup agreement, manufacturer just delivers a fraction of demands, which is committed by retailer before the selling season. After observing market demands, the retailer can order up to the backup quantity at the same price, but pay a penalty for the backup which is not being bought (Eppen and Iyer 1997). Backup agreements intend to help catalog companies reduce the impact of uncertainty about demand. In the return
policies, retailers may return unsold units to manufacturers (Emmons and Gilbert 1998; Tsay 2001; Pasternack 2008). Such contract type is suitable for long production lead-time and short selling season products. Incentive mechanisms, also called the principal-agent (PA) model, are constructed on an asymmetric information relationship between principals and agents (Lee and Whang 1999; Laffont and Martimort 2002; Zhang and Li 2006). By using the incentive mechanisms, principals can induce agents to disclose its private information and improve the performances of a supply chain. Under the RS contract, manufacturers set a wholesale price lower than the unit marginal cost and receive a percentage of revenue from retailers (Wang et al. 2004; Cachon and Lariviere 2005; Chauhan and Proth 2005). The RS contract can eliminate the double marginalization effect. Double marginalization means that while each member maximizes its own profits, it would reduce total channel profits.
Allocation Rules are applied when ordering quantities from retailers exceed the limited available capacity of one single supplier. The supplier chooses orders by using allocation mechanism such as a linear allocation (Myerson 1979; Cachon and Lariviere 1999). From the allocation rules, the double marginalization effect would be vanished while retailers increase their orders to compete with other retailers and suppliers may build more capacity.
The quantity discount is a mechanism that a supplier induces buyers to order the optimal quantity by offering some different types of price discount (Weng 1995; Corbett and Groot 2000; Yang 2004). Moreover, some other contract types are developed such as the shared-saving contracts and the price protection contract. The shared-saving contracts provide some schemes to reduce the consumption material cost for suppliers and customers (Bierma and Waterstraat 1999; Corbett and DeCroix 2001; Corbett et al. 2005). Price protection which is commonly used between manufacturers and retailers in the personal computer industry (Lee et al. 2000) states that the manufacturer pays retailers a credit applying to those unsold products when the wholesale price drops (Taylor 2001). In next
Section, we investigate the current recycling systems practiced by three IT brands and depict as closed-loop supply chain models.