Revenue‐Sharing Contracts Under Quality Uncertainty in Remanufacturing

Abstract

Business users (suppliers) of information technology (IT) equipment often contract with third party remanufacturers (3PRs) for the end‐of‐use disposition of their used electronic equipment. Our goal in this research is to develop a model to analyze contracts consisting of an upfront payment (t) and a revenue share (r) between a supplier and 3PR, study their impact on disposition decisions, and explore the impact of 3PR risk‐aversion and quality uncertainty on optimum contracts. We model a Stackelberg game where the supplier offers risk protection from quality uncertainty to a 3PR. The 3PR faces a convex increasing remanufacturing cost and a sales revenue that is increasing and concave in the volume resold. We show general conditions under which a unique contract exists and can be expressed in closed form. We calibrate our model using a dataset on supplier contracts and equipment conditions provided by a 3PR. Our managerial insights are derived from the data and summarized as follows. First, there is a benefit to suppliers from characterizing the quality of used assets. Therefore, they should consider adjusting contracts to reflect asset quality. Second, suppliers can increase profit by contracting based on quality grade and using a portfolio of contracts. Third, we show that the asset age impacts contract terms, with suppliers with assets at a lower age keeping a higher revenue share and observing a greater fraction of equipment remanufactured. This suggests that suppliers should consider the benefits of disposition contracts when making equipment replacement decisions.

Remanufacturing Operations in Different Financial Ownership Structures with Consideration of the Upwards Supplier

“…Thirdly, the emergence of the third-party remanufacturer has become the focus of research on the cooperation model choice between OEMs and stakeholders. Through authorization or collaborative cooperation, enterprises can reduce the price of remanufactured products and improve market competitiveness (Agrawal et [12][13][14][15][16][17][18][19]. He (2015) compared centralized remanufacturing and decentralized remanufacturing channels [15].…”

Optimal Policy for Probabilistic Selling with Three-Way Revenue Sharing Contract under the Perspective of Sustainable Supply Chain

“…Supply chain coordination with revenue sharing contracts has been widely studied [36][37][38][39][40]. The revenue sharing contract has been widely applied to mitigate or eliminate the double marginalization due to the independent decisions of the members of decentralized supply chains.…”

To Share or Not to Share? The Role of Retailer’s Information Sharing in a Closed-Loop Supply Chain

“…There have been many researches on information sharing, dual recycling channels, and channel power structure in the CLSC, but only a few studies on the coordination among the three elements ( Yue and Liu, 2006 ; Huang and Wang, 2017 ). Unlike previous studies that considered manufacturers usually playing a leading role in the market ( Vedantam and Iyer, 2021 ), our research focuses on different channel power structures. Given the lack of the influence of different channel power structures on the information-sharing decision, we study how to make an optimal information-sharing decision under different power structures when the manufacturer and retailer synchronously recycle used products.…”

“…Manufacturers usually play a leading role in the market based on real business examples ( Vedantam and Iyer, 2021 ). In this case, the manufacturer occupies the dominant position in the market and can make decisions in the game process in priority and according to the reaction of the retailer.…”