Pietro De Giovanni

A two-period game of a closed-loop supply chain

We consider a two-period closed-loop supply chain (CLSC) game where a remanufacturer appropriates of the returns’ residual value and decides whether to exclusively manage the end-of-use product collection or to outsource it to either a retailer or a third-service provider (3P). We determine that the manufacturer outsources the product collection only when an outsourcee performs environmentally and operationally better. On the outsourcees side there is always an economic convenience in managing the product returns process exclusively, independently of returns rewards and operational performance. When outsourcing is convenient, a manufacturer always chooses a retailer if the outsourcees show equal performance. Overall, the manufacturer is more sensitive to environmental performance than to operational perfomance. Finally, there exists only a small region inside which outsouring the collection process contributes to the triple bottom line.

Quality improvement vs. advertising support: Which strategy works better for a manufacturer?

We consider a marketing channel with a single manufacturer and a single retailer, where both advertising and quality improvement contribute to the build-up of goodwill. In a non-coop scenario, the retailer controls the advertising efforts while the manufacturer controls the quality improvements and wholesale price. Although improving quality positively contributes to goodwill, it also increases the production cost, thereby reducing the manufacturers profit. In a coop scenario, the manufacturer supports the retailers advertising while decreasing his investments in quality. We investigate the conditions under which a coop program is beneficial when such a trade-off occurs. Our results demonstrate that only when advertising significantly contributes to goodwill the manufacturer has an incentive to cooperate and a coop program turns out to be Pareto-improving. Conversely, the retailer is always better off with a coop program. Moreover, the channel is operational- and marketing-driven when quality effectiveness is high independent of advertising effectiveness or when both quality and advertising effectiveness are large. In all other cases, the channel is marketing-driven.

Is environmental management an economically sustainable business

This paper investigates whether environmental management is an economically sustainable business. While firms invest in green production and green supply chain activities with the primary purpose of reducing their environmental impact, the reciprocal relationships with economic performance need to be clarified. Would firms and suppliers adjust their environmental strategies if the higher economic value that environmental management generates is reinvested in greening actions? We found out that environmental management positively influences economic performance as second order (long term) target, to be reached conditioned by higher environmental performance; in addition, firms can increase their performance if they reinvest the higher economic value gained through environmental management in green practices: While investing in environmental management programs is a short term strategy, economic rewards can be obtained only with some delays. Consequently, environmental management is an economically sustainable business only for patient firms. In the evaluation of these reciprocal relationships, we discovered that green supply chain initiatives are more effective and more economically sustainable than internal actions.

Incentive strategies for an optimal recovery program in a closed-loop supply chain

We consider a dynamic closed-loop supply chain made up of one manufacturer and one retailer, with both players investing in a product recovery program to increase the rate of return of previously purchased products. End-of use product returns have two impacts. First, they lead to a decrease in the production cost, as manufacturing with used parts is cheaper than using virgin materials. Second, returns boost sales through replacement items.

State- and Control-Dependent Incentives in a Closed-Loop Supply Chain with Dynamic Returns

This paper analyzes two incentive schemes available for a closed-loop supply chain (CLSC) in which a manufacturer and a retailer contribute to the return rate dynamics through their investments in green activity programs. Both firms have economic motivations to perform the return rate because customers who return end-of-use goods also repurchase new ones. In addition, the manufacturer exploits the returns’ residual value in operations to increase profits. Because the manufacturer has both operational and marketing motivations to close the loop, he can provide an incentive to the retailer to boost her investments in green activity programs. The incentive can be either state dependent or control dependent. The former assumes that the incentive depends on the fraction of customers who are willing to return end-of-use products; the latter is proportional to the retailer’s green activity programs efforts. Our results show that a state-dependent incentive is profit-Pareto-improving only when the retailer’s environmental effectiveness is large. In contrast, a control-dependent incentive mechanism is profit-Pareto-improving for low incentive values, high retailer’s environmental effectiveness, and customers’ repurchasing intention. In all other cases, players have divergent preferences and neither mechanism coordinates the CLSC.This paper analyzes two incentive schemes available for a closed-loop supply chain (CLSC) in which a manufacturer and a retailer contribute to the return rate dynamics through their investments in green activity programs. Both firms have economic motivations to perform the return rate because customers who return end-of-use goods also repurchase new ones. In addition, the manufacturer exploits the returns’ residual value in operations to increase profits. Because the manufacturer has both operational and marketing motivations to close the loop, he can provide an incentive to the retailer to boost her investments in green activity programs. The incentive can be either state dependent or control dependent. The former assumes that the incentive depends on the fraction of customers who are willing to return end-of-use products; the latter is proportional to the retailer’s green activity programs efforts. Our results show that a state-dependent incentive is profit-Pareto-improving only when the retailer’s environmental effectiveness is large. In contrast, a control-dependent incentive mechanism is profit-Pareto-improving for low incentive values, high retailer’s environmental effectiveness, and customers’ repurchasing intention. In all other cases, players have divergent preferences and neither mechanism coordinates the CLSC.

Closed-loop supply chain coordination through incentives with asymmetric information

A closed-loop supply chain seeks to enhance the consumers’ environmental consciousness to increase both the profits and the return of past-sold products. Even though, firms have misaligned interests for closing the loop: while all firms exploit consumers environmental consciousness to increase sales, only manufacturers use it for appropriating of returns’ residual value. Starting from a benchmark (no-incentive) scenario where a manufacturer (M) is the leader and a retailer (R) is the follower, we develop two incentive games through a profit-sharing contract to align firms’ motivations for closing the loop. In both incentive games, the incentive takes the form of a share of profits that M transfers to R. Our question is how the sharing fraction should be determined to make both players economically better-off. The first incentive game assumes that R has no-information on the sharing parameter, which is determined by M after R sets her strategies; thus the incentive has an endogenous nature. In the second incentive game the sharing parameter is common knowledge and both players know its values before the game starts, thus the incentive has an exogenous nature. We find that an endogenous incentive is never more economically and environmentally convenient than a no-incentive game. In contrast, an exogenous incentive can make both players economically better-off inside specific sharing parameter ranges. Nevertheless, when other forces (e.g., competition or legislation) impose the adoption of a profit-sharing contract, M should supply an endogenous incentive when the exogenous share is either too high or too low.

A two-period model of product cannibalization in an atypical Closed-loop Supply Chain with endogenous returns: The case of DellReconnect

In this paper we develop a two-period model of an atypical Closed-loop Supply Chain (CLSC) consistent with the DellReconnect project. In our setting, a manufacturer (Dell) sells new products in the first period and faces the threat of cannibalization in the second period from a Goodwill agency, which collects and refurbishes the manufacturer’s goods and sells them as used products. Surprisingly, and unlike the findings from the marketing literature, cannibalization does not lower the manufacturer’s sales in both periods; however, it does negatively impact the manufacturer’s profits and positively affect the Goodwill agency’s profits. We demonstrate that in an atypical CLSC, a reduction in the price of new products is never sufficient to counter the negative effect of cannibalization. We then introduce an advertising strategy, through which the manufacturer complements its pricing strategy, endogenizes the returns, and positively affects both the new and used product demands. Although the advertising strategy positively influences the product returns, it continues to be insufficient to counter the negative effect of cannibalization. Interestingly, we now find that cannibalization is detrimental even for the Goodwill agency, whose profits decrease when the cannibalization level exceeds a certain threshold. Finally, we show that when a “product resale value” option exists, the manufacturer can convert the cannibalization threat into a business opportunity and increase its profits, independent of an advertising strategy. Thus, the manufacturer should always collect through a Goodwill agency when sufficiently large resale value options exist.

Coordination in a distribution channel with decisions on the nature of incentives and share-dependency on pricing

Abstract We research the most suitable coordination mechanism for a distribution channel that is composed of one manufacturer and one retailer. Coordination is sought through a Revenue Sharing Contract (RSC) and the channel members have four coordination options in the menu: The share of revenues can be either set during the course of the game (endogenous) or preset before the game starts (exogenous); similarly, the retail price can be either share-dependent or share-independent. We seek to identify the coordination mechanism that leads to a profit-Pareto-improving situation with respect to a non-coordinated channel that implements a wholesale price contract. We compare players’ profits in the four coordination options and identify the mechanisms that firms prefer. Compared to the non-coordinated channel, our findings suggest that the manufacturer is always economically better-off through coordination, independent of the mechanism the channel uses. In contrast, the retailer is better-off with a share-dependent-pricing mechanism with the share set ex-post. The adoption of a preset share is conditionally beneficial to the parameter fraction. The economic value loss due to the double marginalization cannot be entirely eliminated, independent of the nature (exogenous or endogenous) of the sharing parameter and on the effect of RSC on pricing. In the comparison among coordination mechanisms, only a share-dependent-pricing mechanism with the share fixed over the course of the game is profit-Pareto-improving.We research the most suitable coordination mechanism for a distribution channel that is composed of one manufacturer and one retailer. Coordination is sought through a Revenue Sharing Contract (RSC) and the channel members have four coordination options in the menu: The share of revenues can be either set during the course of the game (endogenous) or preset before the game starts (exogenous); similarly, the retail price can be either share-dependent or share-independent. We seek to identify the coordination mechanism that leads to a profit-Pareto-improving situation with respect to a non-coordinated channel that implements a wholesale price contract. We compare players’ profits in the four coordination options and identify the mechanisms that firms prefer. Compared to the non-coordinated channel, our findings suggest that the manufacturer is always economically better-off through coordination, independent of the mechanism the channel uses. In contrast, the retailer is better-off with a share-dependent-pricing mechanism with the share set ex-post. The adoption of a preset share is conditionally beneficial to the parameter fraction. The economic value loss due to the double marginalization cannot be entirely eliminated, independent of the nature (exogenous or endogenous) of the sharing parameter and on the effect of RSC on pricing. In the comparison among coordination mechanisms, only a share-dependent-pricing mechanism with the share fixed over the course of the game is profit-Pareto-improving.

Should a Retailer Support a Quality Improvements Strategy

In a one-manufacturer-one-retailer supply chain, players establish both operations and marketing strategies and coordinate the chain through the implementation of a support program. A retailer, who sets both the pricing and the advertising strategies, acts as chain leader and decides whether to support a manufacturer’s operational strategy, such as quality improvements. The players share the overall chain revenues based on an exogenous, fixed sharing agreement. We compared coordinated and non-coordinated solutions in which coordination is carried out via a support program for quality improvements. While according to the literature a retailer–leader always has an economic preference for operation-based coordination, our findings reveal that: (a) low operational efficiency and effectiveness discourage the retailer’s interest in coordination and (b) good sharing parameter values overcome concerns regarding operational inefficiency but not those of operational ineffectiveness.

Product cannibalization and the effect of a service strategy

Product cannibalization can push some consumers to shift their purchasing preferences from new to used products. This is a costly issue for manufacturers, who have to adjust their pricing strategies accordingly to mitigate the negative effect of cannibalization. In this paper, we characterize an atypical channel to examine the effect of product cannibalization within the DellReconnect project. In particular, we investigate how the presence of a Goodwill agency in a second-hand market impacts the business of a manufacturer (e.g., Dell) in a new market through cannibalization, and how the manufacturer reacts to mitigate its effects. We show that even if the manufacturer adjusts its price to decrease the negative effects of cannibalization, this effect is so severe that it always loses some profits. Nevertheless, when the manufacturer provides some additional services to new consumers, the negative effects of cannibalization can be partially overcome.