Remanufacturing Strategy of Closed-Loop Supply Chain Under the Constraint of Recycling and Remanufacturing Target: Integrating Carbon Footprint and Social Welfare

Abstract

This study explores optimal remanufacturing strategies in a closed-loop supply chain under government-mandated recycling and remanufacturing targets. Two models are proposed: Model O, featuring the original equipment manufacturer (OEM) managing both product streams, and Model T, with a third-party remanufacturer and the OEM in a leadership role. Utilizing the Stackelberg game-theoretic approach through the Karush-Kuhn-Tucker (KKT) condition, the study reveals that the remanufacturing strategy depends on the unit remanufacturing cost. The cost is divided into two intervals with a distinct strategy based on whether the OEM has remanufacturing capability. In both models, firms exceed recycling and remanufacturing targets in profitable intervals and meet minimum targets in compliance intervals, but with different boundaries. Model O and Model T employ distinct decision-making mechanisms to achieve recycling and remanufacturing targets. Comparative analysis indicates that aggregate supply chain profit in Model T is lower than that in Model O. Social welfare is influenced by the economic impact of carbon emissions; Model O shows higher welfare when the impact is significant, and Model T surpasses it when the impact is insignificant. This study provides insights into effective remanufacturing strategies that consider recycling and remanufacturing targets, unit remanufacturing costs, and the economic impact of carbon emissions.