Implementing Coordinative Contracts between Manufacturer and Retailer in a Reverse Supply Chain

There is an increasing need for company awareness of environmental problems and sustainable business practices. As a post-consumption activity, the reverse supply chain aims to extract value from products at the end of their lifecycle; it offers a means of pursuing sustainability through recycling, remanufacturing, refurbishing, and reusing. This study develops a series of procedures for implementing contracts between manufacturers and retailers to maximize individual profits and total profits through the reverse supply chain. To analyze the effects of the decision strategies made by parties acting on non-coordinative (decentralized) and coordinative contracts, we model a two-echelon reverse supply chain environment using a system dynamics approach. In this study, we examine three cooperative contracts with differing shares of cost and profit between the two parties. Each contract is analyzed according to the following three contract processes. First, the manufacturer proposes a set of contracts that can be considered by the retailer. Second, the retailer evaluates the proposed contracts and chooses the one that is expected to maximize profits. Finally, the retailer and manufacturer adjust the parameters of the best contract to achieve the mutual goal of the supply chain. Using the experimental results, we discuss the best coordinative strategy between manufacturer and retailer for maximizing profits in the reverse supply chain.