A Systems Analysis of Reverse Channel Dynamics and Government Subsidies in Sustainable Remanufacturing

Remanufacturing in reverse logistics can not only support sustainable development but also provide a tractable way to achieve carbon neutrality. This study evaluates whether an original equipment manufacturer (OEM) should remanufacture outsource or authorize this reverse channel activity in the presence of government subsidies. Additionally, the model considers the equilibrium acquisition quantities, collection rates, prices, and effects of government subsidy under three reverse channel options: centralizing remanufacturing, outsourcing remanufacturing, and authorization remanufacturing. The analysis indicates that (i) a centralized approach with manufacturing and remanufacturing operations under a fixed government subsidy is always in the interest of the supply chain; (ii) that for the profit-maximizing third-party remanufacturer (3PR), the differentials in variable collection costs drive the strategy choice, and that a higher fixed scaling parameter of the collection cost favors outsourcing; and (iii) when the government aspires to reduce environmental effects and subsidy payments, the OEM and government have different reverse channel choice preferences. Surprisingly, profitability and environmental goals align under a high consumer acceptance of the remanufactured product. This paper extends the understanding of the remanufacturing strategy of an OEM and provides new insights on which reverse channel is optimal.