Research On Closed-Loop Supply Chain Coordination Mechanism With Contracts

Closed-loop supply chain management is a new pattern of production, organization and management in the 1990s, which is initially generated from continuous deterioration of environment, shortages of resource and limitations of laws and regulations. Closed-loop supply chain (CLSC) is composed of different stakeholders who have contradictions and conflicts between each other. Therefore rational design of coordination mechanisms is of much value in theory and real life for solving the contradictions and conflicts between enterprises and achieving the optimization of overall performance of CLSC.This research focuses on CLSC coordination mechanisms. By combining research methodologies of qualitative and quantitative analysis, system analysis and comparative study, and integrating multiple theories of management, economics and system engineering (game theory, principal-agent theory, operation research, optimal control theory, DEMATEL method etc.), together with the latest achievements of studies of a kind from both domestic and abroad, the CLSC coordination mechanisms with contracts are researched under symmetric information and asymmetric information in depth and systematically. The main contents are as follows:(1) The circular economic theory, product lifecycle theory, extended producer responsibility system, game theory and principal-agent theory are described as the theoretical basis of CLSC establishment, operation and coordination. (2) The DEMATEL method of system engineering is used to identify and analyze the key factors that influence the implementation of CLSC together with the interaction among factors, which solves the problem of difficulty to identify and quantify the influencing factors of CLSC. Meanwhile, the importance of studying CLSC coordination is pointed out from the perspective of quantitative analysis. The concept and category of CLSC coordination are provided. The coordination problems and their causes are analyzed which show that the CLSC coordination problems are the result of synthetic action of asymmetric information, decentralized decision-making, uncertainty, limited rationality and opportunism. Hence, the coordination mechanism with contract is put forward. And the reason is pointed out that contract is the basis and guarantee of CLSC coordination which is able to overcome double marginalization problem among members and help to improve the overall performance of CLSC. Therefore, this research will focus on contract as a means of CLSC coordination mechanism.(3) Under symmetric information, the pricing strategies and coordination mechanisms of CLSC are studied from the perspective of operating mode.At the macro level, the pricing strategies and comparisons of the three recycling modes of manufacturer recycling mode, retailer recycling mode and third-party recycling mode are given. The relationship between each member's profit and related parameters such as recycling cost has been got and the specific tactics for manufacturers to select recycling modes are given, which will provide theoretical basis for manufacturers'decison.At the micro level, with respect to the retailer recycling mode of CLSC, the comparative study of pricing strategies under three decision-making modes–centralized decision making mode, decentralized decision making mode–Stackelberg equilibrium and decentralized decision-making mode–Nash equilibrium are made. The results show that the retailer's profit under decentralized decision making mode–Nash equilibrium is higher than that of Stackelberg equilibrium, while the manufacturer's profit is lower than that of Stackelberg equilibrium. And both of the decentralized decision-making modes will result in double marginalization problem and thus generate efficiency loss. Therefore, on the basis of traditional franchise contract, the franchise contract that can coordinate CLSC is given. The results show that the contract can solve double marginalization problem and achieve perfect coordination of CLSC.(4) Furthermore, based on the assumption that the sales price of remanufactured products and new products are different, as well as the recycling price of waste products are different, the differential pricing strategies are studied. And the improved franchise contract is applied for the coordination of CLSC. The results show that the improved franchise contract can also be able to solve double marginalization problem and achieve perfect coordination of CLSC under differential pricing. It is an effective way of coordination which has fine applicability and easy to extend. Finally, numerical examples are given to illustrate the effectiveness and correctiveness of the models.(5) Under asymmetric information, the problem of adverse selection and incentive mechanism of CLSC is studied. The cause of adverse selection is revealed. With respect to the research object of asymmetric information of the retailer's operating cost, the information screening model is established through revelation principle of principal-agent theory. The results show that when the manufacturer designs contract according to the model, the retailer's profit when reporting false costs is less than that of reporting true costs. The retailer would choose to report true costs in order to maximize its own profit, while the manufacturer's profit will also be maximized at the same time. So it solves the low efficiency problem of the retailer's adverse selection effectively. Through a numerical example, the application and effectiveness of the model is illustrated. Finally, some other strategies of avoiding adverse selection are given.(6) Then the problem of moral hazard and incentive mechanism of CLSC is studied. The cause of moral hazard is analyzed. Through principal-agent theory, the multi-task incentive mechanism with contract is designed, in which the interaction between forward and reverse logistics are analyzed, and the incentive combination strategies for manufacturers are given. The results show that the manufacturer's incentive towards the retailer's activities in CLSC depends not only on the observability that the activity itself has, but also on observability that other activities have. When the retailer's effort costs between activities are not complete alternatives, the incentive contract is usually better than fixed-wage contract. At the same time, the correlation between the retailer's effort costs is of great influence on the design of optimal incentive contract. The implementation of coordination and incentive from the perspective of multi-task can not only achieve Pareto improvement of both profits of manufacturers and retailers, but also improve and allocate the retailer's effort level and resources rationally in multi-task so as to achieve coordination among tasks.With respect to reverse supply chain in which the retailer is less positive, an optimal method of incentive mechanism is put forward through the introduction of an auxiliary observing variable"the total amount of waste products that the manufacturer recycled from another retailer". The results show that the method can improve the incentive intensity of manufacturers towards the retailers and increase the optimal effort level of the retailers. Thus it can enhance the profit expectations of manufacturers and reduce the retailers'moral hazard. Through numerical examples the effectiveness and correctiveness of the models are illustrated. Finally, some other strategies of avoiding moral hazard are given.This research is of great theoretical and practical significance to enrich and supplement the theory and methods of CLSC coordination, to solve contradictions and conflicts between enterprises, to improve cooperation efficiency between node enterprises and the overall performance of CLSC. With acceleration of waste products recycling and remanufacturing and extended producer responsibility, the fruits of this research will have wide application prospect.