On cost and revenue in circular supply chains: Where to close the loop?

Abstract

Environmental sustainability is a main research topic in supply chain management, including sustainable, green, closed-loop, and circular supply chain management concepts. A distinctive feature in concept evolution is the increase in tiers of a supply chain included in the reuse or recycling loop. However, most research focuses on dyadic or triadic supply chain structures. Where to close the loop, i.e., where to position the recycler, repurposer, remanufacturer, refurbisher, repairer, and/or reuser, in multi-tier supply chains remains largely unanswered. In response, this study assesses cost and revenue sharing by analytically modeling monetary flows in linear and circular multi-tier supply chains using linear and circular supply chain models and cost-profit theory to derive equations describing monetary flows between the supply chain tiers and external entities. Results show that firms upstream of the loop-closer are negatively affected by the reuse of material, which leads to an increasingly negative impact on the total profit of the supply chain the further downstream the loop-closer is positioned. This has important theoretical and practical implications since upstream suppliers may leave circular supply chains for linear ones if no offset mechanism is provided. There is no difference between linear and circular supply chains for tiers downstream of the loop-closer level. This effect is normally not considered in the literature, focusing on shorter supply chain structures where all firms are connected to the loop. The most important findings and implications are: If the loop-closer is positioned near the OEM tier or external customer, the total personnel, assets costs and total profits decrease in the circular supply chain compared to the linear supply chain. If the loop-closer is positioned at the most upstream tier level, the total personnel and assets costs, and total profits increase.