Proposing channel coordination and horizontal cooperation in two competitive three‐echelon reverse supply chains

• Author: Saeed Rahmani,Abdorrahman Haeri,Seyyed‐Mahdi Hosseini‐Motlagh
• Published date: 01 May 2020
• Date: 01 May 2020
• DOI: http://doi.org/10.1111/itor.12718

Intl. Trans. in Op. Res. 27 (2020) 1447–1477

DOI: 10.1111/itor.12718

INTERNATIONAL

TRANSACTIONS

IN OPERATIONAL

RESEARCH

Proposing channel coordination and horizontal cooperation in

two competitive three-echelon reverse supply chains

Saeed Rahmani, Abdorrahman Haeri∗and Seyyed-Mahdi Hosseini-Motlagh

School of Industrial Engineering, Iran University of Science and Technology, Tehran, Iran

E-mail: saeedrahmani457@yahoo.com [Rahmani]; ahaeri@iust.ac.ir[Haeri]; motlagh@iust.ac.ir [Hosseini-Motlagh]

Received 3 December 2018; receivedin revised form 12 August 2019; accepted 18 August 2019

Abstract

Considering and analyzing various kinds of cooperation among supply chain members is an option for

better managing each channel. It is noteworthythat in many real-world cases, each of vertical and horizontal

cooperation has an important role in the success of supply chains. Nevertheless, only vertical cooperation in

most previous research is considered. This paper addresses both vertical and horizontal cooperation in two

competitive reverse supply chains, each of which includes one collector, one remanufacturer, and one retailer.

Our primary concern is to analyze quality improvementcompetition between the remanufacturers. Moreover,

retail price competition between the retailers and the quality competition are simultaneously considered in

the extended model. In this research, the investigated system has been analyzed under different structures

including decentralized, centralized, horizontal cooperation, and coordinated decision-making models. The

results show that when the remanufacturers cooperate horizontally, the profit of each collector and that of

the retailer will decrease compared with those in the decentralized structure. To overcome this problem, a

new coordination contract named multiple-link two-part tariff is proposed to simultaneously coordinate the

members of each chain. The proposed contract effectivelyconvinces the remanufacturers to participate in the

coordination model instead of the horizontal cooperation. Moreover, it provides a win–win–win condition

for all chain members and improvesthe quality level of the remanufactured products. The results indicatethe

proper performance of the proposed contract in improving the benefits of the competing chains, especially

when there exists no intense competition between the remanufacturers(i.e., when the market sensitivity to the

quality of the remanufactured products is lowand consequently less effort is needed to increase the quality of

the remanufactured products). Moreover, the proposed contract not only is able to simultaneously increase

both remanufactured products demand and of end-of-life products supply but also involves both economic

and environmental benefits.

Keywords:reverse supply chain; coordination; horizontal cooperation; quality competition; multiple-link; two-part tariff

contract

∗Corresponding author.

C

2019 The Authors.

International Transactionsin Operational Research C

2019 International Federation ofOperational Research Societies

Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main St, Malden, MA02148,

USA.

1448 S. Rahmani et al. / Intl. Trans. in Op. Res. 27 (2020) 1447–1477

1. Introduction

A reversesupply chain (RSC) can lead to economic profitability.In addition, it can help to achieve the

sustainable developmentgoals. Moreover, it helps the industries to properlyuse resources and satisfy

the customers who care aboutenvironmental issues.In RSCs, each decision made by an RSC member

affects all other members and therefore the RSC actors should coordinate their decisions. For

instance, the quality of remanufactured products influences the purchasing behavior of customers.

Therefore, improving the quality of remanufactured products by the remanufacturer increases

the remanufactured products’ demand. Under such a case, not only the customers’ satisfaction

increases but also all RSC members obtain more market share. Moreover, effective pricing and

collecting strategies are necessary to enhance RSCs’ efficiency. Due to the uncertainty in quantity

and quality of used products, many firms prefer to use third-party collectors to easily collect the

used products. The collectors can motivate customers to return their used products by providing

some incentive schemes. For instance, a collector could offer an appropriate acquisition price to the

customers to attract their attention and therefore collect more used products. On the other hand,

retailers play an important role in RSCs since they could increasethe market demand by offering an

appropriate retail price to the customers. Thus, the retailers can facilitate the selling process of the

remanufactured products in RSCs. Consequently, the collectors and retailers play an intermediary

role among the remanufacturers and customers and they could improve the performance of RSCs

in achieving the economic and environmental goals. In the traditional business environments,

retailers, collectors,and remanufacturers individually optimize their decisions in pricing, collection,

and quality management process. However, cooperation and coordination among RSC members

could influence the performance of the whole system. Moreover, in many real cases, there are two

RSCs, which compete on different factors such as the quality level of the remanufactured products.

Under such a case, horizontal cooperation, which can occur among members at the same level,

will affect all RSC activities.For example, when two remanufacturers cooperatively make decisions,

the quality level of the used products, transfer price, and the wholesale price could be changed.

It results to change the collection price and the retail price. According to the discussions above,

the decisions on pricing, collection, and quality level are closely interdependent on each other and

consequently, a proper strategy should be planned to effectively coordinate such decisions, thereby

improving the economic profits of the whole RSC and providing a win–win–win situation for all

members.

Supply chain coordination is one of the most well-documentedmethods for aligning decisions in a

decentralized supply chain (SC). Coordination mechanisms can improve the entire SC performance

through creating incentivesfor all members to adopt it (Nematollahi et al., 2017a; Wang et al., 2020;

Sarkar et al., 2019). More details on SC coordination can be found in various studies (Cachon,

2003; Arshinder and Deshmukh, 2008; Xue et al., 2016). There are a number of contracts to

coordinate various decisions in SCs. Revenue sharing, delay in payments, collaborative models,

cost-sharing, two-part tariff,compensation-based wholesale price, and buy-back are some examples

of coordination contracts (Partha Sarathi et al., 2014; Bai et al., 2017; Ebrahimi et al., 2017;

Nematollahi et al., 2017b, 2018; Johariet al., 2018; Johari and Hosseini-Motlagh, 2018; Lambertini,

2018; Nouri et al., 2018; Raj et al., 2018). Although coordination models have been extensively

applied in forward SCs, the coordination in the reverse flow of the chain has not yet been widely

applied (Hu et al., 2016). In recent research, Feng et al. (2017) considered a two-part tariff contract

C

2019 The Authors.

International Transactionsin Operational Research C

2019 International Federation ofOperational Research Societies