Reverse Channel Design: The Case of Competing Retailers

• Published in: Management science Vol. 52; no. 1; pp. 1 - 14
• Main Authors: Savaskan, R. Canan, Van Wassenhove, Luk N
• Format: Journal Article
• Language: English
• Published: Linthicum, MD INFORMS 01.01.2006; Institute for Operations Research and the Management Sciences
• Series: Management Science
• Subjects: Applied sciences; Business management; Business studies; Capital costs; Collection acquisitions; Competition; Cost structure; Distribution; Distribution channels; Economic models; Exact sciences and technology; Fees; Logistics; Management science; Manufacturing; Marketing; Operational research and scientific management; Operational research. Management science; Operations research; Product design; Product management; product remanufacturing; Product returns; Profits; Remanufactured products; Remanufacturing; Retail prices; Retail stores; Retail trade; Retailing industry; reverse logistics; Statistical analysis; supply chain coordination; Supply chain management; Supply chains; Wholesale prices; United States > US; Economics; Profitability; Coordination; Cellular radio; Flexibility; Recovery; 2001. This paper was with the authors 2 years and 8 months for 3 revisions; Economy; supply chain management; received May 22; Retailers; Pricing; reverse logistics; product remanufacturing; supply chain coordination; distribution channels Accepted by Fangruo Chen; Profit; Recycling; Logistics
• ISSN: 0025-1909; 1526-5501
• DOI: 10.1287/mnsc.1050.0454

The economical and environmental benefits of product remanufacturing have been widely recognized in the literature and in practice. In this paper, we focus on the interaction between a manufacturer’s reverse channel choice to collect postconsumer goods and the strategic product pricing decisions in the forward channel when retailing is competitive. To this end, we model a direct product collection system, in which the manufacturer collects used products directly from the consumers (e.g., print and copy cartridges) and an indirect product collection system, in which the retailers act as product return points (e.g., single-use cameras, cellular phones). We first examine how the allocation of product collection to retailers impacts their strategic behavior in the product market, and we discuss the economic trade-offs the manufacturer faces while choosing an optimal reverse channel structure. When a direct collection system is used, channel profits are driven by the impact of scale of returns on collection effort, whereas in the indirect reverse channel, supply chain profits are driven by the competitive interaction between the retailers. Subsequently, we show that the buy-back payments transfered to the retailers for postconsumer goods provide a wholesale pricing flexibility that can be used to price discriminate between retailers of different profitability.