Journal of Cleaner Production 59 (2013) 185e196

Contents lists available at SciVerse ScienceDirect

Journal of Cleaner Production

journal homepage: www.elsevier.com/locate/jclepro

Revenue sharing coordination in reverse logistics

Fereshteh Mafakheri a, Fuzhan Nasiri b, *
a
Department of Systems Management and Strategy, University of Greenwich, London SE10 9LS, United Kingdom
b
Bartlett School of Graduate Studies, University College London (UCL), London WC1H 0NN, United Kingdom

a r t i c l e i n f o a b s t r a c t

Article history: A reverse supply chain, as a post-consumption activity, aims at extracting value from products at the end
Received 3 December 2012 of their life cycle. It could be comprised of reusing, refurbishing, remanufacturing, and recycling activities.
Received in revised form In this paper, we revisit the issue of revenue sharing in reverse supply chains to formulate the decision
4 April 2013
problems of coordinating parties, manufacturer and retailer. The coordination is formed in a dynamic
Accepted 17 June 2013
Available online 29 June 2013
setting, where a feedback relationship exists between the return incentive policy of the retailer, and the
revenue sharing incentive strategy of the manufacturer. To model this process, we have adopted the use of
a system dynamics (SD) approach. SD is well suited for studying the behavior of complex systems over
Keywords:
Reverse logistics
time, and where internal feedbacks and delays exist. We first identify Pareto-optimal solutions, for in-
Coordination dividual players, and from environmental perspectives of landfill diversion and carbon offset. We then
Revenue sharing focus on revenue sharing, as a widely practiced coordination scheme in reverse supply chains. It resembles
System dynamics a leaderefollower (Stackelberg) strategic decision-making game, with an equilibrium solution that yields
Game-theory lower performance for environmental criteria. In this context, we investigate if/how a revenue sharing
Supply chain management mechanism can be coordinated to achieve a higher environmental performance.

2013 Elsevier Ltd. All rights reserved.

1. Introduction in performance of reverse supply chains because the benefits,

Public awareness and pressure from governments are attracting
increasing attention toward environmental protection. Hence,
companies aiming to be the leaders of industry are adopting various
sustainable business practices. A reverse supply chain (Prahinski
and Kocabasoglu, 2006; Pokharel and Muth, 2009) is one way of
pursuing sustainability. Reverse supply chains seek to recover value
from products at the end of their life cycle through recycling,
remanufacturing, refurbishing, and reusing (El Korchin and Millet,
2011). Estimates show that the total value of the returned prod-
ucts in the United States is worth $100 billion per year (Stock et al.,
2002). Adding a reverse process to supply chains can also create new
jobs in the manufacturing sector. Thus, design of reverse supply
chains is considered a positive move from both environmental and
social points of view, as well as a potential source of revenue for the
businesses involved (Sarkis, 2003; Srivastava, 2007).
There are five major processes in a typical reverse supply chain:
product acquisition, tests, inventories, reprocessing and remar-
keting. Research shows that product acquisition plays a critical role
* Corresponding author.
E-mail address: f.nasiri@ucl.ac.uk (F. Nasiri).
economic, social or environmental, are noticeable only if the
collected quantity is sufficiently large (Vachon and Klassen, 2006;
Bai, 2009). In this sense, a well-performing reverse supply chain
requires effective product acquisition through organized efforts
and actions from all involved members (Galbreth and Blackburn,
2006). This is a challenging task, as each member, rationally, is
seeking profit by optimizing certain individual objectives.
Research is also beginning to emerge that integrates analysis and
design of supply chains with better environmental outcomes (e.g.,
Azapagic and Clift, 1999; Faruk et al., 2001; Norris et al., 2002; Geyer
and Jackson, 2004; Browne et al., 2005; Seuring and Muller, 2008;
Chaabane et al., 2012; Mafakheri et al., 2011). Objectives, in a
context where environmental goals are salient, can include targets for
landfill diversion and mitigation of greenhouse gas emissions. To align
each member’s objectives with the overall environmental perfor-
mance of the supply chain, a means of coordination contract among
the members is required (Corbett and Decroix, 2001; Debo et al.,
2004; Vachon and Klassen, 2006). There are several contracting
mechanisms to ensure shared economic benefits from reverse supply
chain activities, including buy-back, quantity flexibility, cost sharing,
revenue sharing and sales rebate (Cachon and Lariviere, 2005; Calcott
and Walls, 2005; Shi and Bian, 2009; Su, 2009; Jacobs and
Subramanian, 2012, Yan, 2012).

0959-6526/$ e see front matter
2013 Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.jclepro.2013.06.031
186 F. Mafakheri, F. Nasiri / Journal of Cleaner Production 59 (2013) 185e196
In this paper, we review the coordination strategy of revenue
sharing in reverse supply chains. Revenue sharing incentives are
common arrangements in waste management practices (Walls and
Palmer, 2001; Calcott and Walls, 2005; Yao et al., 2008). We
formulate decision problems of the coordinating parties in a
manufacturereretailer reverse supply chain. In reality, there could
be a feedback relationship between the revenue sharing incentive
strategy of a manufacturer and the return incentive policy of a
retailer. This is the case when the amount of incentive a retailer is
offering to consumers for their returned products, is set according
to, and inline with, the amount of (reselling and recycling) revenue
shared by a manufacturer. This creates a dynamic feedback, from
the manufacturer’s decision on revenue sharing incentive, to the
retailer’s decision on the amount of incentive to consumers for
product returns, in which a change in the former can trigger a
change in the latter and vice versa.
To model this process, we adopt the use of a system dynamics
approach. System dynamics (SD) is a modeling approach developed
in the early 1960s (Forrester, 1961) for analyzing and simulating the
behavior of complex problems over time. We have chosen this
modeling approach as it emphasizes the importance of feedbacks
and delays in dynamic systems and is well suited for understanding
how systems respond to change. SD modeling applications in
supply chain management have mainly focused on inventory de-
cisions, time compression, demand amplification, international
supply chain management, and the impact of environmental and
technological drivers (Angerhofer and Angelides, 2000; Zhang and
Dilts, 2004; Georgiadis et al., 2005). In recent years, the complexity
of reverse logistics processes has persuaded researchers to employ
SD modeling to analyze various strategies and policies in order to
integrate forward and reverse supply chains (Kumar and Yamaoka,
2007; Vlachos et al., 2007; Georgiadis and Besiou, 2008; Qingli
et al., 2008). SD modeling is also increasingly used in environ-
mental research and policy analysis (Hannon et al., 2001).
The proposed model is built on the basis of a reverse supply
chain of used printer ink cartridges, where a dynamic leaderefol-
lower (Stackelberg) game is played. Game-theory applications in
supply chain coordination aim at modeling and analyzing the
supply chain agents’ decision problems who are acting non-
cooperatively or cooperatively (Cachon and Lariviere, 2005;
Grimes-Casey et al., 2007; Hennet and Arda, 2008; Nagarajan and
Sosic, 2008; Nasiri and Zaccour 2009). In a reverse logistics of used
printer cartridges, and in case of a revenue sharing arrangement,
the retailer optimizes its payoff, using a cartridge return incentive
offered to consumers as a decision variable, subject to collection
costs, which is comprised of inventory and transportation costs,
and the expected revenue to be shared by the manufacturer. The
manufacturer in turn anticipates this behavior and will adjust its
revenue sharing strategy so as to maximize its own payoff. This
sequential decision-making process resembles a Stackelberg
(leaderefollower) game. This type of games is taking place where
one player has a strategic advantage either as a function of time;
such as having faster/easier access to information (Simaan and
Cruz, 1973a), or as a function of the state of the game; such as a
greater size, market share, etc. (Simaan and Cruz, 1973b). This
player, as the leader of the game, can impose its preferred solution
to other players who are playing the game passively as a follower.
This is the case in a reverse supply chain process. Although, it is
physically initiated with retailer’s inventory of collected cartridges,
there are several subsequent stages including transportation to the
manufacturer’s collection centre, sorting, manufacturing in-
ventories, refurbishing and recycling processes, and reselling. As a
result of such a lengthy process, the manufacturer would become
aware of the extent of the revenues ahead of the retailer. This gives
the manufacturer a leading position from information and timing
perspectives, initiating a Stackelberg (leaderefollower) game. With
delays in logistical activities, decisions made in each stage, serve as
a feedback, influencing the decisions in subsequent stages. Thus,
revenues earned (and shared) at a given stage (i.e. manufacturer’s
decision) will impact the incentive offerings (i.e. retailer’s decision)
in subsequent stages and vice versa.
We further analyze the impact of such dynamic (and delayed)
feedbacks by comparing the solutions obtained for the above
Stackelberg game, with Pareto-optimal solutions from the per-
spectives of individual players’ profitability and collective envi-
ronmental objectives (landfill diversion and carbon mitigation). Not
surprisingly, there is a clear trade-off between individual players’
profit and supply chain environmental performance. The results
point to the fact that a first mover advantage preserves manufac-
turer’s profit, at the expense of a reduction in cartridge recovery.
This shows why a sequential decision making, with the manufac-
turer as a leader, is a preferred coordination practice (Savaskan
et al., 2004; Savaskan and Van Wassenhove, 2006). Comparing
the Stackelberg outcome with Pareto-optimal solutions also con-
firms that a revenue sharing coordination strategy could become
more environmentally friendly, if each player abandons an
approach based solely on profit maximization for a collective
environmental goal, such as maximizing total quantity of returned
cartridges (i.e. landfill diversion) or mitigation of carbon emissions.
This, however, may not be in the best interest of each player,
leading to an example of prisoner’s dilemma.
In the light of the above findings, we then investigate whether
(or not) this typical leaderefollower reverse supply chain can be
coordinated to achieve higher environmental performance. In do-
ing so, we first turn to external drivers, studying the impact of
environmental regulations and policies such as a carbon tax or a
cap-and-trade mechanism. The analysis points to the fact that a net
carbon saving can be achieved through a used ink cartridge reverse
supply chain driven by profitability of returns, and a carbon tax or a
cap-and-trade mechanism does not have a significant impact on
further improving this performance. In this context, however, we
show that a carbon tax, if set appropriately, would be more effective
in triggering higher levels of carbon mitigation and cartridge re-
covery. We then focus on the structure of manufacturereretailer
coordination, to see if a reversal of leader and follower roles could
contribute to an improvement in environmental performance
criteria. In this new setting, a retailer can offer an incentive to
consumers in exchange for returned cartridges, in anticipation of
shared revenues from participating manufacturers. Here, the
retailer acts as a leader with a decision on the amount of incentive
and the manufacturer follows by sharing a certain share of the
revenues. The outcome shows that, with a revised coordination
structure, a considerable improvement of environmental criteria is
expected with almost no lessening of players’ profitability. We
further elaborate on how to encourage the formation of such a
reversed coordination scheme.
To the best of our knowledge, this is the first attempt to employ
an SD approach to model and analyze reverse supply chain de-
cisions, in a dynamic setting, where the coordination follows a
Stackelberg game. At the same time, this research aims to
contribute to the integration of operations research and environ-
mental analysis by adding detail and granularity to the character-
ization of internal and external drivers of environmental
performance and their impact in the context of reverse logistics.
2. Methodology
In the North America, each year more than 350 million printer
cartridges end up in landfill (Preton, 2010). In addition to landfill
diversion benefits, reclaiming used printer cartridges is a value-

added process and can generate revenue and mitigate carbon
emissions. The remaining value of a used ink cartridge can be
recovered by refilling, reusing, remanufacturing, or by recycling its
materials to be used in making new cartridges or other products. In
average, 97 per cent of the weight of a printer cartridge is composed
of recoverable materials; mainly plastics, metals, foams, and rubber
(CDGS, 2009). The refillability, reusability, and refurbishability of
printer cartridges, as well as their high recycling potentials and
large economies of scale, make them an appealing choice for
reverse logistics. However, a major challenge for manufacturers is
the collection of used cartridges from end consumers. The mail-in-
return programs, introduced by many manufacturers of printer
cartridges, have not been very attractive for consumers due to the
need for postage. Alternatively, manufacturers can rely on retailers
to collect these returned products (Savaskan et al., 2004). For
instance, Staples, a major office supply retailer, has collected more
than 67 million printer cartridges for participating manufacturers
in 2011 (Staples, 2012). In doing so, a retailer is to offer some form
of incentive to consumers to encourage returns of the used car-
tridges, and in exchange, manufacturers will often share part of the
revenues coming from the recycling or resale of remanufactured
cartridges. A typical reverse supply chain for used ink cartridge is
shown in Fig. 1.
In this process, consumers return their used ink cartridges to
retailer stores. Once the inventory has reached to a certain quantity,
cartridges are transported to a distribution centre and from there to
manufacturer. All used cartridges go through a sorting process, and
based on their conditions, they will be either remanufactured or
considered for recycling of their material contents. In this paper, for
the sake of simplicity, we assume that a collecting retailer is not
responsible for reselling of the remanufactured cartridges.
In the sequel, we will follow a four-step process to analyze the
revenue sharing coordination in a manufacturereretailer reverse
logistics of the used printer cartridges. First, the relationships
among the key objectives, variables, and parameters of the involved
parties are explored through a causal loop diagram. This would
provide a basis for construction of a detailed model to formulate the
decision problems of the manufacturer and the retailer, while
capturing their linking elements. The model is utilized to obtain the
optimal (and equilibrium) solutions for both parties under various
coordination scenarios. Then, we will perform a sensitivity analysis
to investigate the impact of external and internal drivers of envi-
ronmental performance. In the realm of external drivers, the
impact of introducing an emission tax or a cap-and-trade mecha-
nism, as the main alternative carbon emission policies, will be
explored. The analysis of the internal drivers will focus on the
impact of the players’ leader/follower roles on improving the car-
bon saving performance of this reverse logistics.
2.1. Causal relationships
A causal relationship diagram representing a typical used ink
cartridge reverse supply chain is shown in Fig. 2. The arrows
represent the relationships among variables. The direction and sign
of each influence line explain the direction and sign of respective
effects. A plus sign means a reinforcing effect while a negative sign
represents a balancing effect. The reverse supply chain process
begins from the upper left corner of Fig. 2. By offering an incentive
to consumers, a retailer encourages them to return their used ink
Transport
Return
Distribution
Transport
Consumer Retailer
Center
Fig. 1. Reverse supply chain of printer ink cartridges.
F. Mafakheri, F. Nasiri / Journal of Cleaner Production 59 (2013) 185e196 187
+ Retailer's Pay-off +
Reinforcing Influence
+
Retailer's Incentive to -
- Balancing Influence
Consumers Retailer's Revenue
Retailer's Cost Decision Influence
+
+
+ Revenue Sharing Ratio
- +
Used Cartridge
Returns
Manufacturer's Pay-off
+ Manufacturer's
-
Cost
+
Manufacturer's +
Revenue
Fig. 2. Causal loop diagram of used ink cartridge reverse supply chain.
cartridges. These returns are sent to the manufacturer, refurbished
for resale, or recycled for materials recovery to create revenue. With
respect to its payoff (i.e. the net earnings), the manufacturer shares
part of the earnings with the retailer to compensate the collection
incentive and costs. In doing so, the ratio of revenue shared with
the retailer is a decision variable for the manufacturer, while, on
that basis, the retailer decides on how much incentive should be
put forward for returned used cartridges.
Fig. 2 consists of four causal loops, one reinforcing and three
balancing, where the sign of each loop is the algebraic product of
the signs of its relations. Offering incentives and sharing revenues
increase the costs of retailer and manufacturer, respectively, while
later on, these moves encourage the returns, and consequently,
create more revenues for both parties. Fig. 2 also reflects the fact
that a retailer with higher earnings is more encouraged to offer a
higher incentive to consumers, while a manufacturer with a higher
payoff is more willing to share revenues.
2.2. Model
Understanding the elements and causal relationships that form
decisions of manufacturer and retailer in a reverse supply chain of
used printer cartridges, we can construct a model to formulate this
process. An SD model using VENSIM Professional 5.9e platform
(VENSIM, 2010) is built with stock and flow elements (Fig. 3), rep-
resented by boxes and double line arrows, respectively. Stock vari-
ables monitor the state of a system, and flow variables represent the
rates of change in these stocks. We also have exogenous parameters,
as well as internal decision variables that influence flow variables. In
our case, inventories of manufacturer and retailer are the stocks to
monitor, with their rates of increase and decrease as flows. There are
three types of inventories; inventory of collected cartridges held by
the retailer as well as manufacturer’s inventories for recycling and
refurbishing. The model is also comprised of decisions on revenue
sharing and return incentives, and other influencing parameters
such as inventory, sorting and transportation costing.
The model is thus optimized, subject to return and revenue
sharing incentive offering strategies (as decision variables of retail
and manufacturing entities, respectively). The results vary on the
basis of the choice of objective function(s) (presented in blue in
Fig. 3). The Pareto-optimal solutions are obtained when we maxi-
mize (1) the payoff of a retailer, (2) the payoff of a manufacturer,
and (3) a collective environmental objective such as quantity of
Resell reclaimed cartridges or quantity of mitigated carbon, and (4) the
Manufacturer Market
collective payoff, which is the sum of players’ payoffs. In addition, a
Stackelberg equilibrium solution is identified when, through a
backward induction (Simaan and Cruz, 1973a), where the retailer’s
188 F. Mafakheri, F. Nasiri / Journal of Cleaner Production 59 (2013) 185e196

<Retailer's
Payoff>
Retailer's
<Revenue Coordination Scope
Sharing Ratio> Retailer's Unit + Retailer's Payoff +
Payoff Before <Retailer's
<Time> + Before Incentive Revenue>
Incentive Offered Incentive <Return Rate of
by Competition - -
+ + Used Cartridge>
<Cumulative <Retailer's Incentive
Incentive + Retailer's Cost to Consumers>
Reclaimed -
Ratio + - -
Cartridges>
Retailer's Incentive +
Unit Refilling Price
+ to Consumers
by Competition +
+ Retailer's Unit Retailer's Retailer's
Incentive Retailer's Unit Retailer's Immediate Gain Payoff
Transportation Cost
Retail Price of - Attractiveness + Inventory Cost Inventory Cost
New Cartridge + +
+
Retailer's <Manufacturer's
Cumulative Cumulative Retailer's Inventory of Used Transportation Cost Payoff> Manufacturer's
Gross Carbon Reclaimed Return Rate of Cartridge Delivery Rate of Coordination Scope
Emissions Cartridges Used Cartridge Used Cartridge + +
+ + + +
Manufacturer's Unit
+ New Cartridge + + <Time>
Retailer's Delivery + Transportation Cost Retailer's
Gross Carbon Sale
Emissions Batch Size Revenue
<Refurbishable Manufacturer's +
Carbon Emission Cartridge Delivery +
Sorting Cost + Market Price of +
+ per New Cartridge Rate> Manufacturer's Unit
Cost of Sorting + Refurbished
Manufacture's
<Delivery Rate of Cartridge
- Transportation Cost
Used Cartridge> + Revenue
+ Recycler's Sharing Ratio
Inventory of Returned Cartridge for +
Purchasing Price
Recyclable Recycling Selling Rate for +
Manufacturer's
Cartridge Delivery Recycling
+ Revenue -
Rate Unit Inventory Cost Carbon
Carbon Mitigation Cumulative +
(for Recycling) + + + + Tax Ratio
per Recycled +
Cartridge
Carbon Mitigation Manufacturer's + Manufacturer's Manufacturer's
+ Unit Inventory Cost <Refurbished
+ + + Inventory Cost Cost Immediate
- Gain Carbon
Carbon (for Refurbishing) Cartridge Selling Credit Price
Carbon Mitigation Mitigation + Rate> + +
per Refurbished + + + + + - Carbon
Cartridge
<Refurbishable Emission Tax
Inventory of Refurbishable Returned +
Cartridge Refurbished Cartridge Delivery Manufacturer's <Carbon
Refurbishable + Mitigation>
+ Cartridge Selling Rate> Payoff
Cartridge Delivery - Net Carbon
Rate Unit Refurbishing -
Rate Carbon Emissions
<Delivery Rate of Cost + Emission Credit
+ Ratio of Emission Cap +
Used Cartridge> +
+ Refurbishables Cap Regression + <Gross Carbon
Rate - Cumulative Net
<Time> Emissions> Carbon Emissions

Fig. 3. System dynamics model of used ink cartridge reverse supply chain (VENSIM, 2010).

payoff, as a follower, is maximized with respect to the manufac- 2.3. Equations

turer’s potential choices on revenue sharing incentive. From this, a
return incentive to revenue sharing response (relation) function is Here, we rigorously describe variables and parameters of our
constructed. It is expected that the manufacturer, as a rational model, along with details of the above-discussed objective func-
leader, anticipates this response relationship. Therefore, to obtain tions (a full description of the equations is provided in the
an equilibrium solution, we can proceed with maximization of the Appendix).
manufacturer’s payoff, while incorporating the retailer’s response The “Cumulative Reclaimed Cartridges”, which reflects the
into it. It is also expected that a rational consumer will return the landfill diversion, is identified as the total number of cartridge units
used cartridge to the retailer when there is an incentive offered for reclaimed during the course of coordination (Note that we
the returns. We introduce an indicator called “incentive attrac- communicate the element of “Time” by ‘t’ and per Month):
tiveness” to capture this phenomenon.
To calculate the players’ payoffs, we need to subtract ZT
the sum of their costs from their revenue. As presented in Q ðTÞ ¼ qðtÞdt; (1)
Fig. 3, the retailer’s cost is comprised of inventory cost, and cost t¼0
of transporting collected cartridges to the manufacturer’s distri-
bution centre. The manufacturer’s cost includes cost of trans- where
porting collected cartridges from the distribution centre to a
manufacturing facility, cost of sorting (i.e. to identify if a cartridge qðtÞ ¼ rðtÞ$sðtÞ; (2)
should be refurbished or recycled), inventory costs, and rema-
nufacturing process costs. The manufacturer’s revenue originates and T: Modeling Scope (Month), q(t): Return Rate of Used Car-
from two sources; selling of refurbished cartridges and selling of tridges (Unit/Month), r(t): Incentive Attractiveness (Dimension-
collected cartridges for recycling. When shared, it also creates less) e see Eq. (3), s(t): Cartridge Sale (Unit/Month).
revenue for the retailer. Eq.(2) captures the fact that the quantity of returned cartridges is a
The details of equations governing this model are provided in function of demand for printer cartridges and attractiveness of return
the following section. Data from a coordination case of Hewlette incentives. The higher is the sale of printer cartridges, the higher is the
Packard (a major manufacturer of printers and printer cartridges) potential for higher returns. If this potential is met with an attractive
and Staples is used to support the analysis. For the sake of return incentive it generates higher returns. We have defined
simplicity, we will focus on a particular cartridge, HP-02 Color Ink “Incentive Attractiveness” as a value between 0 and 1, representing
Cartridge, incorporating its selling and refilling prices. consumer’s willingness to return a used cartridge to retailer, which is
 F. Mafakheri, F. Nasiri / Journal of Cleaner Production 59 (2013) 185e196 189

increasing in “Retailer’s Incentive to Consumer” and “Unit Refilling gR ðtÞ ¼ VR ðtÞ  CR ðtÞ  aðtÞ$qðtÞ; (9)
Price by Competition”, and is decreasing in “Retail Price of New Car-
tridge”. These attributes can be captured and fulfilled by the following and
equation (assumed to be linear for the sake of simplicity): 
8 aðtÞ 0 gM ðtÞ  0
<1  1; VR ðtÞ ¼ ; (10)
Pnr Prc u$VM ðtÞ gM ðtÞ > 0
rðtÞ ¼ (3)
: aðtÞ
Pnr Prc otherwise
where gR(t): Retailer’s Immediate Gain ($/Month), where
(gR(t ¼ 0) ¼ 0), VR(t): Retailer’s Revenue ($/Month) e see Eq. (50) in
where Prc: Unit Refilling Price by Competition ($/Unit), Pnr: Retail the Appendix, CR(t): Retailer’s Total Cost ($/Month) e see Eq. (41) in
Price of New Cartridge ($/Unit), a(t): Retailer’s Incentive to Con- the Appendix.
sumer ($/Unit) e see Eq. (11). Assuming that an incentive of i is offered by competition for
Refilling is an alternative way for consumers to recover old each returned cartridge, a retailer who is willing to establish a used
cartridges. In reality, however, manufacturers have been acting ink cartridge collection coordination with the manufacturer, has to
against the idea of cartridge refilling. Refilling of used cartridges is put forward a competitive incentive. Given that the cap value for
conducted by a third party. The price incorporated in the above, Prc, this incentive would be the retailer’s net payoff per unit of collected
is what consumers are charged for refilling. From the perspective of cartridge (i.e. the payoff before incentive), we have:
brand value, it is worth mentioning that the consumers have
8
already decided about the brand at the time of buying a printer. > PR ðtÞ PR ðtÞ
Once the printer is bought, the consumer could only buy the same > Q ðtÞ l þ i$ð1  lÞ
>
> Q ðtÞ >i
>
<
brand (and type) of cartridge. PR ðtÞ ðtÞ
aðtÞ ¼ Q ðtÞ
l 0 < PQRðtÞ  i; (11)
The “Cumulative Carbon Mitigation”, or the total carbon savings >
>
>
>
as a result of cartridge reclamation, is calculated as follows: >
:0 PR ðtÞ
Q ðtÞ 0
ZT
EðTÞ ¼ eðtÞdt; (4) where

t¼0 Zt
PR ðt ¼ tÞ ¼ ðVR ðtÞ  CR ðtÞÞdt; (12)
where
t¼0

eðtÞ ¼ e1 bðtÞqðtÞ þ e2 ð1  bðtÞÞqðtÞ; (5)

and PR(t): Retailer’s Net Payoff ($), l˛½0; 1: Return Incentive Ratio
(Dimensionless).2
and e(t): Carbon Mitigation (Ton/Month), e1: Carbon Mitigation per
In case of a carbon tax, the manufacturer’s payoff would be
Refurbished Cartridge (Ton/Unit), e2: Carbon Mitigation per Recy-
modified to:
cled Cartridge (Ton/Unit), b(t): Ratio of Refurbished Cartridges
(Dimensionless). ZT
It is expected that e1 > e2, and thus, a reverse supply chain with a pM ðTÞ ¼ ½gM ðtÞ  y$3 ðtÞdt (13)
higher rate of cartridge refurbishing (b(t)) is associated with a
t¼0
higher carbon mitigation capacity. This requires a careful collection
and remanufacturing system that minimizes damage to returned where
cartridges.
Now turning to individual players, the “Manufacturer’s Payoff” 3 ðtÞ ¼ 3 $sðtÞ  eðtÞ (14)
per ($) is captured by:
and y: Carbon Tax Rate ($/Ton), 3 (t): Net Carbon Emissions (Ton/
ZT Month), 3 : Carbon Emission per Sold Cartridge (Ton/Unit).
pM ðTÞ ¼ gM ðtÞdt; (6) Alternatively, with a cap-and-trade policy3 in place, which allows
t ¼0 emissions up to a certain limit, the above payoff is rewritten as:
ZT
where
pM ðTÞ ¼ ½gM ðtÞ þ hðkðtÞ  3 ðtÞÞdt (15)
gM ðtÞ ¼ ð1  uÞVM ðtÞ  CM ðtÞ; (7) t¼0

and gM(t): Manufacturer’s Immediate Gain ($/Month), u˛½0; 1: where

Revenue Sharing Incentive Ratio (Dimensionless),1 VM(t): Manu-
facturer’s Revenue ($/Month) e see Eq. (29) in the Appendix, CM(t):
Manufacturer’s Total Cost ($/Month) e see Eq. (24) in the Appendix.
The “Retailer’s Payoff” per ($) is also obtained as follows:
ZT
pR ðTÞ ¼ gR ðtÞdt;
kðtÞ ¼ 3 $sðtÞ$ð1  kÞ (16)
and h: Carbon Credit Trading Price ($/Ton), k(t): Carbon Emissions
Cap Ton/Month), k: Regression Rate of Carbon Cap (Dimensionless).
In the sense of Eq. (15), if emissions exceed the cap, the differ-
(8) ence poses the number of carbon credits that should be purchased

t¼0
2
Retailer’s decision variable.
where 3
By placing a cap (limit) on emissions, a cap-and-trade mechanism creates a
market for emission allowances trading. To avoid a penalty, companies exceeding
this emissions cap buy allowances from those who have managed to stay below the
1
Manufacturer’s decision variable. limit.
190 F. Mafakheri, F. Nasiri / Journal of Cleaner Production 59 (2013) 185e196

by the manufacturer. If emissions are within the limit, the manu-
facturer sells the remaining carbon credits on market, creating an
extra source of income. Here, we assume a regressing rate for car-
bon cap, which is practiced in cap-and-trade mechanisms in order
to impose a gradual move toward emission reduction targets
(Keohane, 2009).
3. Results and analysis
The model is simulated with a monthly time step over T ¼ 48
months (i.e. long enough to capture the effect of delays), moni-
toring manufacturereretailer coordination performance. First, we
need simulation runs to obtain the first four Pareto-optimal solu-
tions, considering Eqs. (1), (4), (6) and (8) as the individual objec-
tive function of the model to be maximized. We then obtain the
collective payoff solution by maximizing the sum of manufacturer
and retailer’s payoffs (sum of Eqs. (6) and (8)). This resembles a
perfect union or merger of manufacturer and retailer. There are
further simulations performed to identify the equilibrium for
Stackelberg coordination, which are (1) with no carbon mitigation
policy, (2) under a carbon tax regime and (3) under a cap-and-trade
framework, optimizing Eqs. (6), (13) and (15) as the manufacturer’s
objective function, respectively. The retailer responds to the man-
ufacturer’s strategy by optimizing its own payoff (Eq. (8)). These
three Stackelberg scenarios provide insight about the impact of
carbon mitigation policies (as the external drivers) on the envi-
ronmental performance of the reverse logistics. Under all these
scenarios, revenue sharing and return incentives (i.e. u; l˛½0; 1)
serve as decision variables of manufacturer and retailer, respec-
tively. As mentioned before, the solution approach of this leadere
follower coordination game is founded on the recognition of the
fact that the manufacturer, as a leader player, can anticipate the
response of the follower (i.e. the retailer’s choice of a return
incentive) to its strategic choice (i.e. revenue sharing ratio). Thus,
using backward induction, we start from the retailer’s decision
problem, optimizing its payoff over a decision variable l, with
respect to potential revenue sharing ratios (ex. 0, 0.1, 0.2, ., 0.9, 1).
We proceed, then, by replacing the retailer’s response (i.e. the re-
tailer’s choice of return incentive for given revenue sharing ratios)
in the leader’s (manufacturer’s) problem to compute its optimal
choice of revenue sharing ratio. This is done using a lookup func-
tion, incorporating (u, l(u)) pairs, where the manufacturer’s payoff
is maximized over a decision variable u.
Based on carbon emission and mitigation coefficients estimated
through life cycle assessment of new and remanufactured HP
printer ink cartridges (CRR, 2010), data on the carbon cap, pricing,
and taxation mechanisms (IMF, 2007, 2008), and using supply chain
data from Bai (2009), parameters of the used ink cartridge reverse
supply chain model are summarized in Table 1. The information on
carbon price estimations (ranging between $15 and $60 per ton of
carbon) and the expected annual carbon cap (2% for the United
States) are adopted from the International Monetary Fund report
on fiscal implications of climate policies (IMF, 2008). We measure y,
carbon tax ratio in $/Ton, and h, carbon credit trading price in $/Ton,
as policy parameters, which means that we change these param-
eters and monitor their impacts and sensitivities, so as to identify
the choices that direct the manufacturereretailer coordination to-
ward a better environmental performance.
The optimal values for decision variables and their associated
objectives (i.e. the terminal values at Time ¼ 48 Months) are re-
ported in Table 2. We then use these optimal values to simulate the
behavior of our reverse supply chain (Fig. 4). The simulation results
for various carbon tax ratios and carbon credit prices are also
presented in Tables 3 and 4, respectively.
According to Fig. 4(a), when collecting used ink cartridges, the
retailer has to put forward a competitive return incentive. Moving
forward from this point, the cap for this incentive would be the
retailer’s net payoff per unit of returned cartridge. As simulation
shows, at the beginning the retailer offers an intermittent incentive
to attract returns by consumers. Once a steady flow of returned
cartridges is established, the amount of incentive will reach an
equilibrium level. Fig. 4(b) reveals that as the process moves toward
an equilibrium level for the return incentive, the return rate of used
cartridges (q(t)) will also reach an equilibrium level. Consequently,

Table 1
Parameters of the used ink cartridge reverse supply chain.

Description Value Dimension

Carbon Emission per New Cartridge 0.0012 Ton/Unit

Carbon Mitigation per Refurbished Cartridge 0.0004 Ton/Unit
Carbon Mitigation per Recycled Cartridge 0.0002 Ton/Unit
Regression Rate of Carbon Emissions (Carbon Cap) 2% Per Year
Cartridge Sale (for the sake of simplicity we assume [4500, 5500] Units/Month
a uniform distribution for demand volatilities)
Manufacturer’s Unit (levelizeda) Cost of Sorting 0.3 $/Unit
Manufacturer’s Unit (levelized) Transportation Cost 0.01 $/Unit
Market Price of Refurbished Cartridge 6 $/Unit
Price of Recyclable Materials 0.5 $/Unit
Ratio of Refurbished Cartridges (for the sake of simplicity we assume [65%, 75%] Dimensionless
that the variations in quality of returned cartridges are uniformly distributed)
Retail Price of New Cartridge (for HP-02 Color Ink Cartridge) 11 $/Unit
Retailer’s Delivery (to distribution centre) Batch Size 2000 Unit
Retailer’s Unit (levelized) Inventory Cost 0.05 $/Unit
Retailer’s Unit (levelized) Transportation Cost 0.02 $/Unit
Unit (levelized) Inventory Cost (for Recycling) 0.05 $/Unit
Unit (levelized) Inventory Cost (for Refurbishing) 0.05 $/Unit
Unit Refilling Price by Competition (Refilling Shops) 6 $/Unit
Unit (levelized) Refurbishing Cost 1 $/Unit
Retailer’s Payback Scope (a rational retailer expects to gain a positive payoff 3 Month
within this payback period and if it takes more than that, the retailer is not entering the coordination)
Manufacturer’s Payback Scope (a rational manufacturer expects to gain 6 Month
a positive payoff within this payback period, if it takes more than that, the
manufacturer is not entering the coordination)
Return Incentive Offered By Competition 1.1 $/Unit
a
A levelized unit cost aggregates the share of fixed and variable costs per each cartridge unit over the simulation period.
 F. Mafakheri, F. Nasiri / Journal of Cleaner Production 59 (2013) 185e196 191

Table 2 total quantity of cartridges diverted from disposal (Q(t)) will

Objectives and decision variables in Pareto-optimal, collective and Stackelberg cases. steadily increase at a fixed rate. Turning to players’ payoffs, pre-
Solution Objective Objective values Decision variables sented in Fig. 4(c) and (d), it is recognized that due to the existing
scenario functions
pR(t) pM(t) Q(t) E(t) u* l* time lag between spending for cartridge collectionereclamation
and the receipt of income from the sale of reclaimed cartridges (and
Pareto- p*
R(t) 86,176 41,131 86,711 28.45 0.634 0.371
revenue sharing), both payoffs go negative at the beginning. For the
optimal p*
M(t) 19,090 99,062 81,371 26.45 0.449 0.838
*
Q (t) 15,246 51,521 107,727 35.20 0.634 1.000 retailer, it takes some time to reach out to consumers and offer the
E*(t) 15,257 52,094 107,630 35.20 0.634 1.000 incentives before used cartridges start to pile up. Once the retailer
Collective pR* (t) þ pM
*
(t) 46,470 79,447 87,009 28.46 0.525 0.571 establishes a steady flow of returns, its payoff starts to grow. The
Stackelberg p*M(t) / p*R(t) 21,216 89,813 66,155 21.82 0.417 0.537
manufacturer’s payoff also becomes negative at the beginning as
the income from resale of refurbished cartridges (or recycled ones)

Fig. 4. Simulation of manufacturereretailer coordination outcomes in terms of (a) Retailer’s Return Incentive [$/Unit], (b) Cumulative Reclaimed Cartridges [Unit], (c) Retailer’s
Payoff [$], (d) Manufacturer’s Payoff [$], (e) Cumulative Carbon Mitigation [Ton].
192 F. Mafakheri, F. Nasiri / Journal of Cleaner Production 59 (2013) 185e196

Table 3 a carbon tax or credit can improve the environmental performance

Stackelberg equilibrium for various carbon tax rate scenarios.
Carbon tax ($/Ton) Equilibrium values
p*R(t) p*M(t) Q*(t) E*(t) u*
20 21,212 84,575 66,155 21.82 0.417
30 21,212 83,265 66,155 21.82 0.417
40 24,965 77,728 68,538 22.49 0.433
50 24,855 75,350 68,434 22.48 0.432
60 21,224 74,006 66,159 21.82 0.417
lags behind the accumulation of transporting, storing, sorting,
refurbishing, and recycling costs.
Reviewing the results presented in Table 2 and Fig. 4 also cap-
tures the fact that although it is in the best interest of manufacturer
to bring down the revenue sharing ratio, it certainly cannot go
below 41.7 per cent, otherwise the coordination will be terminated
by the retailer due to lack of profitability. On the other hand, the
retailer wishes to establish coordination with manufacturer while
offering a minimum return incentive to consumers. But to create a
steady income through a steady supply of used cartridges, it has to
put forward a competitive incentive (i.e. not less than an equilib-
rium level of $1.37/Unit, which is obtained at an incentive ratio of
0.537). As presented in Table 2, a cooperative (Pareto-optimal)
strategy of maximizing the total quantity of returns/total carbon
mitigation is associated with a smaller payoff for manufacturer and
retailer (compared to their own Pareto-optimal solutions). Such a
compromise will create a more effective collection system in terms
of total returns (or landfill diversion) and carbon mitigations,
placing the environmental performance of this reverse supply
chain ahead of individual players’ interests. According to Table 2,
even a collective payoff (merger) strategy can yield higher envi-
ronmental performance compared to Stackelberg coordination.
This also poses a better payoff for the retailer. However, such a
collective solution is merely a hypothetical case, as reaching
a perfect union is not in the best interest of manufacturer from a
profitability perspective, and will impose revenue sharing com-
plexities in the case of working with several retailers. In reality, the
manufacturer seeks a leader advantage, pursuing a higher payoff
with a lower revenue sharing ratio, which yields a much lower
cartridge recovery and carbon mitigation performance.
Although the relative carbon footprint of a printer cartridge is
small, the overall carbon inventory of this stock is considerable, as
we are dealing with a large stock of them. In terms of carbon
mitigation policies, however, the simulation results, as presented in
Tables 3 and 4, shows that neither carbon tax nor cap-and-trade
mechanisms have a significant impact on further improving the
environmental performance of the process. In a reverse supply
chain of used ink cartridges, the emission mitigation is a function of
cartridge recovery. The carbon saving, due to refurbishment and
recycling of printer cartridges, far exceeds the amount of carbon
emitted in this reverse supply chain. As a considerable net carbon
saving is already embedded in this process, the impact of carbon
policies would be minimal. In this sense, as shown in Tables 3 and 4,
of the reversed supply chain only if it can motivate the manufac-
turer to offer a higher share of revenue to retailer, which in turn,
l* increases the quantity of returned cartridges. In this context, a
carbon tax outperforms a cap-and-trade approach. With a tax in
0.537
place, the manufacturer is willing to share more revenue with the
0.537
0.510 retailer (up to a 43.3 per cent rate) to increase cartridge returns
0.511 (and thus carbon mitigation), in order to pay less tax. This moti-
0.537 vation does not exist with a cap-and-trade policy, as the carbon
mitigation through cartridge recovery is large enough to meet any
realistic cap. Although the cap-and-trade system can provide extra
income for the manufacturer (from trading of carbon credits), it is
relatively very small compared to that earned from cartridge resale
and recycling. Overall, the best outcome comes with a carbon tax of
around $40 per ton of carbon, which increases cartridge recovery
and carbon mitigation by three per cent.
With a limited influence from the external carbon policy drivers,
we now investigate if a reversal of leaderefollower roles can
improve the environmental performance of this reverse supply
chain of printer ink cartridges. In doing so, using backward in-
duction, we now start from a manufacturer’s decision problem,
maximizing its payoff over a decision variable u, with respect to
potential return incentives (ex. 0, 0.1, 0.2, ., 0.9, 1). We proceed,
then, by replacing manufacturer’s response (i.e. the manufacturer’s
choice of revenue sharing for given return incentives) in the
leader’s (retailer’s) problem to compute its optimal choice of return
incentive. We thus end with a lookup function, incorporating
(l,u(l)) pairs, in which the retailer’s payoff is maximized over a
decision variable l.
The results, presented in Table 5, show a significant increase in
environmental performance of the process with this new setting
(i.e. retailer as leader), compared to a conventional setting with the
manufacturer as the leading entity. In comparison with outcomes of
the original Stackelberg setting, the quantity of accumulated car-
tridges and the volume of mitigated carbon could increase by 15 per
cent in exchange for just over one per cent reduction in the man-
ufacturer’s payoff. This equilibrium also poses a better payoff for
the manufacturer compared to a collective payoff case. The
reversed Stackelberg coordination also shows a far better envi-
ronmental performance compared to carbon tax and cap-and-trade
policies. The main rationale behind this performance improvement
is the empowering of the retailer, as a leader, that generates a far
more competitive incentive for consumers at $1.65/Unit for an
equilibrium incentive ratio of 0.794. This improvement, in turn, can
considerably increase the quantity of returned cartridges and the
amount of mitigated carbon.
In reality, however, the retailers may hesitate to act as a leader in
this process. This is due to the fact that the motivation to assume a
leader role in such a sequential decision-making process (i.e.
Stackelberg game) relies on the ability to anticipate the decisions of
other parties, whereas the others do not have the same ability
(Simaan and Cruz, 1973a,b). This ability is either a function of time,
as a result of having faster/easier access to information, or a func-
tion of the state of the game; as a result of players’ differences in

Table 4
Stackelberg equilibrium for various carbon credit pricing scenarios Table 5
Equilibrium values in the revised Stackelberg setting
Carbon credit Equilibrium values
price ($/Ton) Objective Objective values Decision variables
p*R(t) p*M(t) Q*(t) E*(t) u* l*
functions
pR(t) pM(t) Q(t) E(t) u* l*
20 21,212 89,974 66,156 21.82 0.417 0.537
30 21,212 90,055 66,156 21.82 0.417 0.537 p*R(t) / p*M(t) 23,355 88,674 76,112 25.19 0.459 0.794
40 21,212 90,131 66,156 21.82 0.417 0.537 Deviation from the original
50 21,225 90,179 66,159 21.82 0.417 0.537 Stackelberg values
60 21,225 90,256 66,159 21.82 0.417 0.537 10.1% 1.3% 15.1% 15.4%
 F. Mafakheri, F. Nasiri / Journal of Cleaner Production 59 (2013) 185e196
size, market share, etc. In a reverse logistics, there are several
reasons why a retailer will have difficulties in either anticipating
the manufacturer’s revenue sharing decision or being able to
dictate a preferred outcome. First, there is a considerable delay
between the collection of returned cartridges by the retailer and
the receipt of shared revenue from the manufacturer. Also, there
are uncertainties about the quality of returned cartridges, which
are later evaluated in the manufacturer’s facility. This affects the
refurbishability and recyclability of the collected products, leading
to uncertainties in the expected revenues. In addition, waste
management regulatory frameworks generally emphasize the
manufacturer’s responsibility in this process, with no immediate
incentives for the retailers (Grimes-Casey et al., 2007). As a result of
the above challenges, the retailer prefers to play the reverse lo-
gistics coordination game passively following the strategies
announced by the manufacturer.
There are several strategies that, if adopted, could encourage the
retail entity to assume a leadership role in reverse logistics decision
making. First, the regulator could place a higher emphasis on
shared responsibilities through specific incentives for retailers. An
incentive to retailer could be in form of a municipal tax relief as a
result of participation in solid waste reduction. Also, the retailer
could be authorized to charge a refundable deposit when selling a
new cartridge, which makes it similar to the case of refillable bot-
tles (Grimes-Casey et al., 2007). This could serve as an additional
incentive for consumers to return their used cartridges (Lifset,
1993). Such strategies place the retailer in a stronger strategic po-
sition with respect to manufacturer’s revenue sharing decision. In
addition, if a retailer works with multiple participating manufac-
turers it can diversify its sources of income from shared revenues,
easing the concerns about revenue sharing uncertainties. Also,
adopting efficient collection, inventory and transport strategies, to
reduce processing costs and delays and to increase the quality of
returns, will again reduce the uncertainties about the revenues, and
thus, increases the ability of the retailer to anticipate the manu-
facturer’s outputs. For instance, a decentralized reverse supply
chain, where retailers can evaluate and sort the return products
locally, could remarkably speed up the process while lowering the
overall costs (Blackburn et al., 2004). Establishment of a long-term
relationship between the retailer and the consumers also contrib-
utes to maintaining a higher (and steady) return rate of used car-
tridges (Grimes-Casey et al., 2007). This, however, not only relates
to the extent of the incentives offered to consumers by the retailer
but also reflects consumer satisfaction toward the retailer in
general.
In summary, the retailer not only face systematic challenges in
anticipating the manufacturer’s decision but also lack a strong
strategic position to dictate a preferred decision mainly due to the
lack of regulatory incentives as well as process (mainly sorting)
inefficiencies in manufacturer’s facility. Strengthening the strategic
position of retailer through external incentives or internal effi-
ciency gains and/or reducing the process uncertainties (in terms of
costs and delays) could strategically put the retailer in a leader
position. In doing so, the retailer initiates the coordination by of-
fering incentives for returned products in anticipation of sharing
the manufacturer’s revenue from resale of refurbished/recycled
materials, parts, and products.
4. Conclusions
This study was a first attempt to employ an SD approach to
model and analyze reverse supply chains, in a dynamic setting,
where the coordination follows a Stackelberg decision-making
process. A manufacturer’s decision on sharing the foreseen reve-
nues with the participating retailer persuades the retailer to offer
193
an incentive to encourage the return of used cartridges by con-
sumers. As the quantity of returns increases, the manufacturer has a
better chance to increase the resale of refurbished products and/or
achieve higher recycling targets, leading to higher shared revenues.
This process is carried out against a backdrop of various costs
including collection, sorting, holding, processing, and trans-
portation costs. In this sense, revenue sharing and return incentive
variables could reach an equilibrium level where no player can
obtain a higher net payoff by deviating from it. Such a sequential
coordination, which is repeated over time, was formulated as a
Stackelberg (leaderefollower) game and was simulated using an SD
model with feedback and delay components. We identified and
analyzed Pareto-optimal and equilibrium solutions for manufac-
turereretailer coordination. The initial results pointed to a clear
trade-off between individual players’ profit and supply chain
environmental performance. The obtained solutions also captured
the logic behind a sequential decision-making in manufacturere
retailer coordination. The first mover advantage preserves manu-
facturer’s profit. However, this does not work to the best interest of
the retailer as it lowers the revenue sharing ratio, which conse-
quently, caps the retailer’s incentive to consumers and reduces the
rate of cartridge returns.
Reflecting on manufacturereretailer (leaderefollower) coordi-
nation, the main research question was to see if/how we could
improve the environmental performance of a reverse logistics. We
have analyzed two main drivers of performance improvement
namely external policy interventions and internal structural
changes. In the first case, we monitored the impact of emission
polices, such as a carbon tax or a cap-and-trade mechanism. It was
revealed that these drivers of carbon mitigation have limited in-
fluence on improving the environmental performance of used
cartridge reverse supply chains. This is due to the fact that there is
sufficient profit from the resale of returned cartridges to trigger
high level of environmental benefits. However, in comparison, a
carbon tax policy performed better than a cap-and-trade approach
in terms of cartridge recovery rates and carbon mitigation. More
importantly, we have shown that a reversal of leader and follower
roles, as an internal driver of change, could remarkably improve the
environmental achievements. According to our findings, this role
reversal results in a more balanced revenue sharing practice, and
thus, a higher return incentive for consumers. We elaborated more
on the practical implications of such a reversal, and the strategies to
encourage retailers to assume a leading role in establishing reverse
logistics coordination with manufacturers.
As one could conclude from this study, the analysis of the
environmental performance of the reverse logistics of used prod-
ucts is subject to the availability of life cycle carbon emission data.
This requires transparency and openness from both manufacturer
and retailer in capturing and sharing data on collection, sorting,
refurbishment, and recycling processes. In addition, the environ-
mental performance of a reverse logistics is linked to quality of
returned used products. This is due to the fact that the quality of
returns determines their recycle-ability and refurbishability, and
consequently, the extent of carbon recovery from the reverse lo-
gistics. It highlights the importance of careful collection and
handling of the used products to preserve materials and carbon
recovery potentials. In this sense, the sorting cost of used printer
cartridges accounts for a significant share of pre-processing costs
(see Table 1). The issue of quality is also influencing the environ-
mental performance of a reverse logistics from the perspective of
refurbished products. It is commonly believed that refurbished
cartridges are not as well performing as the new ones. To increase
the sale of remanufactured cartridges, which was linked to a higher
revenue sharing potential, we require an improved remanufactur-
ing process and a greater emphasis on remarketing. Many
194 F. Mafakheri, F. Nasiri / Journal of Cleaner Production 59 (2013) 185e196
manufacturers might be reluctant to follow upon these steps, as the
first one could increase their processing costs and the latter could
be considered as a threat and competition for their new products.
This study has focused on revenue sharing in a reverse logistics
with one manufacturer, one retailer and one particular used
product. As a future direction, a more complex reverse supply chain
with multiple products and retailers can be examined. Also, we can
further analyze other forms of manufacturereretailer coordination
contracts such as buy-back contracts (Yan, 2012). The estimation of
life cycle energy and water savings associated with the recovery of
used cartridges could also be of interest to policy makers and can be
explored through an SD framework.
Acknowledgements
The idea of this paper was initiated and evolved when the first
author was a visiting researcher at Yale University. Therefore, the
authors are very much grateful to Mr. Reid Lifset, Associate Director
of the Industrial Environmental Management Program at Yale
University, for his insightful advice, suggestions and helps. We are
also very much grateful to four reviewers of this paper, whose
careful comments and suggestions were very helpful in improving
the manuscript.
Appendix. Glossary of equations, variables, parameters, and
their units as defined in VENSIM platform (in alphabetical
order)
(1) Cap Regression Rate ¼ 0.02, Units: Dimensionless
(2) Carbon Credit Price ¼ 0, Units: $/Ton
(3) Carbon Emission Cap ¼ Gross Carbon Emissions * (1  Cap
Regression Rate * (1 þ INTEGER (Time/12))), Units: Ton/Month
(4) Carbon Emission per New Cartridge ¼ 0.0012, Units: Ton/Unit
(5) Carbon Emission Tax ¼ Net Carbon Emissions * Carbon Tax
Ratio, Units: $/Month
(6) Carbon Mitigation ¼ Carbon Mitigation per Recycled
Cartridge * Recyclable Cartridge Delivery Rate þ Carbon
Mitigation per Refurbished Cartridge * Refurbishable Cartridge
Delivery Rate, Units: Ton/Month
(7) Carbon Mitigation per Recycled Cartridge ¼ 0.0002, Units:
Ton/Unit
(8) Carbon Mitigation per Refurbished Cartridge ¼ 0.0004, Units:
Ton/Unit
(9) Cartridge Sale ¼ RANDOM UNIFORM (4500, 5500, 0), Units:
Unit/Month
(10) Carbon Tax Ratio ¼ 0, Units: $/Ton
(11) Cumulative Carbon Mitigation ¼ INTEG (Carbon Mitigation, 0),
Units: Ton
(12) Cumulative Gross Carbon Emissions ¼ INTEG (Gross Carbon
Emissions, 0), Units: Ton
(13) Cumulative Net Carbon Emissions ¼ INTEG (Net Carbon
Emissions, 0), Units: Ton
(14) Cumulative Reclaimed Cartridges ¼ INTEG (Return Rate of
Used Cartridge, 0), Units: Unit
(15) Delivery Rate of Used Cartridge ¼ IF THEN ELSE (Retailer’s
Inventory of Used Cartridge >¼ Retailer’s Delivery Batch Size,
INTEGER (Retailer’s Inventory of Used Cartridge/Retailer’s
Delivery Batch Size) * Retailer’s Delivery Batch Size, 0), Units:
Unit/Month
(16) Emission Credit ¼ Carbon Emission Cap  Net Carbon Emis-
sions, Units: Ton/Month
(17) Gross Carbon Emissions ¼ Carbon Emission per New
Cartridge * New Cartridge Sale, Units: Ton/Month
(18) Incentive Attractiveness ¼ MIN (Retailer’s Incentive to Con-
sumers/(Retail Price of New Cartridge  Unit Refilling Price by
Competition), 1), Units: Dimensionless
(19) Incentive Offered by Competition ¼ 1.1, Units: $/Unit
(20) Incentive Ratio ¼ WITH LOOKUP (Revenue Sharing Ratio,
([(0,0)e(1,1)], (0,0.566), (0.1,0.566), (0.2,0.566), (0.3,0.566),
(0.4,0.566), (0.5,0.397), (0.6,0.52), (0.7,0.262), (0.8,0.566),
(0.9,0), (1,0.566))), Units: Dimensionless
(21) Inventory of Refurbishable Returned Cartridge ¼ INTEG
(Refurbishable Cartridge Delivery Rate  Refurbished Car-
tridge Selling Rate, 0), Units: Unit
(22) Inventory of Returned Cartridge for Recycling ¼ INTEG
(Recyclable Cartridge Delivery Rate  Selling Rate for Recy-
cling, 0), Units: Unit
(23) Manufacture’s Transportation Cost ¼ Manufacturer’s Unit
Transportation Cost * Delivery Rate of Used Cartridge, Units:
$/Month
(24) Manufacturer’s Cost ¼ Manufacturer’s Inventory
Cost þ Manufacture’s Transportation Cost þ Manufacturer’s
Sorting Cost þ Refurbishable Cartridge Delivery Rate * Unit
Refurbishing Cost, Units: $/Month
(25) Manufacturer’s Immediate Gain ¼ Manufacturer’s
Revenue * (1  Revenue Sharing Ratio)  Manufacturer’s
Cost  Carbon Emission Tax þ Carbon Credit Price * Emission
Credit, Units: $/Month
(26) Manufacturer’s Inventory Cost ¼ Inventory of Refurbishable
Returned Cartridge * “Unit Inventory Cost (for
Refurbishing)” þ Inventory of Returned Cartridge for
Recycling * “Unit Inventory Cost (for Recycling)”, Units:
$/Month
(27) Manufacturer’s Payback Scope ¼ 6, Units: Month
(28) Manufacturer’s Payoff ¼ INTEG (Manufacturer’s Immediate
Gain, 0), Units: $
(29) Manufacturer’s Revenue ¼ Refurbished Cartridge Selling
Rate * Market Price of Refurbished Cartridge þ Selling Rate for
Recycling * Recycler’s Purchasing Price, Units: $/Month
(30) Manufacturer’s Sorting Cost ¼ Delivery Rate of Used
Cartridge * Manufacturer’s Unit Cost of Sorting, Units: $/Month
(31) Manufacturer’s Unit Cost of Sorting ¼ 0.3, Units: $/Unit
(32) Manufacturer’s Unit Transportation Cost ¼ 0.01, Units: $/Unit
(33) Market Price of Refurbished Cartridge ¼ 6, Units: $/Unit
(34) Net Carbon Emissions ¼ Gross Carbon Emissions  Carbon
Mitigation, Units: Ton/Month
(35) Ratio of Refurbishables ¼ RANDOM UNIFORM (0.65, 0.75, 0),
Units: Dimensionless
(36) Recyclable Cartridge Delivery Rate ¼ Delivery Rate of Used
Cartridge  Refurbishable Cartridge Delivery Rate, Units: Unit/
Month
 F. Mafakheri, F. Nasiri / Journal of Cleaner Production 59 (2013) 185e196
(37) Recycler’s Purchasing Price ¼ 0.5, Units: $/Unit
(38) Refurbishable Cartridge Delivery Rate ¼ Ratio of
Refurbishables * Delivery Rate of Used Cartridge, Units: Unit/
Month
(39) Refurbished Cartridge Selling Rate ¼ DELAY FIXED (Refur-
bishable Cartridge Delivery Rate, 1, 0), Units: Unit/Month
(40) Retail Price of New Cartridge ¼ 10, Units: $/Unit
(41) Retailer’s Cost ¼ Retailer’s Transportation Cost þ Retailer’s
Inventory Cost, Units: $/Month
(42) Retailer’s Delivery Batch Size ¼ 2000, Units: Unit
(43) Retailer’s Immediate Gain ¼ Retailer’s Revenue  Retailer’s
Cost  Retailer’s Incentive to Consumers * Return Rate of Used
Cartridge, Units: $/Month
(44) Retailer’s Incentive to Consumers ¼ ACTIVE INITIAL (IF THEN
ELSE (Retailer’s Payoff <¼ 0: AND: Time > Retailer’s Payback
Scope, 0, IF THEN ELSE (Retailer’s Unit Payoff Before
Incentive > 0, IF THEN ELSE (Retailer’s Unit Payoff Before
Incentive <¼ Incentive Offered by Competition, Incentive
Ratio * Retailer’s Unit Payoff Before Incentive, Incentive
Ratio * Retailer’s Unit Payoff Before Incentive þ (1  Incentive
Ratio) * Incentive Offered by Competition), Incentive Offered by
Competition)), Incentive Offered by Competition), Units: $/Unit
(45) Retailer’s Inventory Cost ¼ Retailer’s Inventory of Used
Cartridge * Retailer’s Unit Inventory Cost, Units: $/Month
(46) Retailer’s Inventory of Used Cartridge ¼ INTEG (Return Rate of
Used Cartridge  Delivery Rate of Used Cartridge, 0), Units:
Unit
(47) Retailer’s Payback Scope ¼ 3, Units: Month
(48) Retailer’s Payoff ¼ INTEG (Retailer’s Immediate Gain, 0), Units: $
(49) Retailer’s Payoff Before Incentive ¼ INTEG (Retailer’s
Revenue  Retailer’s Cost, 0), Units: $
(50) Retailer’s Revenue ¼ IF THEN ELSE (Manufacturer’s
Payoff <¼ 0: AND: Time > Manufacturer’s Paback Scope, 0, IF
THEN ELSE (Manufacturer’s Immediate Gain > 0, Manufac-
turer’s Revenue * Revenue Sharing Ratio, 0)), Units: $/Month
(51) Retailer’s Transportation Cost ¼ Delivery Rate of Used
Cartridge * Retailer’s Unit Transportation Cost, Units: $/Month
(52) Retailer’s Unit Inventory Cost ¼ 0.05, Units: $/(Unit * Month)
(53) Retailer’s Unit Payoff Before Incentive ¼ IF THEN ELSE (Cu-
mulative Reclaimed Cartridges > 0, Retailer’s Payoff Before
Incentive/Cumulative Reclaimed Cartridges, 0), Units: $/Unit
(54) Retailer’s Unit Transportation Cost ¼ 0.02, Units: $/Unit
(55) Return Rate of Used Cartridge ¼ New Cartridge Sale * Incentive
Attractiveness, Units: Unit/Month
(56) Revenue Sharing Ratio (Initial Value) ¼ 0.5, Units:
Dimensionless
195
(57) Selling Rate for Recycling ¼ DELAY FIXED (Recyclable Cartridge
Delivery Rate, 1, 0), Units: Unit/Month
(58) “Unit Inventory Cost (for Recycling)” ¼ 0.05, Units:
$/(Unit * Month)
(59) “Unit Inventory Cost (for Refurbishing)” ¼ 0.05, Units:
$/(Unit * Month)
(60) Unit Refilling Price by Competition ¼ 6, Units: $/Unit
(61) Unit Refurbishing Cost ¼ 1, Units: $/Unit.
References
Angerhofer, B.J., Angelides, M.C., 2000. System dynamics modeling in supply chain
management: research review. In: Proceedings of the 2000 Winter Simulation
Conference, Orlando, FL, USA.
Azapagic, A., Clift, R., 1999. The application of life cycle assessment to process
optimisation. Computers and Chemical Engineering 23 (10), 1509e1526.
Bai, H., 2009. Reverse Supply Chain Coordination and Design for Profitable Returns:
An Example of Ink Cartridge. Master thesis. Worcester Polytechnic Institute,
Worcester, MA, USA.
Blackburn, J.D., Guide, V.D.R., Suza, G.C., Van Wassenhove, L.N., 2004. Reverse supply
chains for commercial returns. California Management Review 46 (2), 6e22.
Browne, M., Rizet, C., Anderson, S., Allen, J., Keita, B., 2005. Life cycle assessment in
the supply chain: a review and case study. Transport Reviews 25 (6), 761e782.
Cachon, G.P., Lariviere, M.A., 2005. Supply chain coordination with revenue-sharing
contracts: strengths and limitations. Management Science 51 (1), 30e44.
Calcott, P., Walls, M., 2005. Waste, recycling, and “design for environment”: roles for
markets and policy instruments. Resource and Energy Economics 27 (4), 287e305.
CDGS, 2009. Best Practices Manual: Toner and Ink Cartridges. California Depart-
ment of General Services, Sacramento, CA, USA.
Chaabane, A., Ramudhin, A., Paquet, M., 2012. Design of sustainable supply chains
under the emission trading scheme. International Journal of Production Eco-
nomics 135 (1), 37e49.
Corbett, C.J., DeCroix, G.A., 2001. Shared savings contracts for indirect materials in
supply chains: channel profits and environmental impacts. Management Sci-
ence 47 (7), 881e893.
CRR, 2010. Comparative Carbon Footprint Analysis of New and Remanufactured
Inkjet Cartridges. Centre for Remanufacturing and Reuse, Aylesbury, UK.
Debo, L., Savaskan, C., van Wassenhove, L.N., 2004. Coordination in closed-loop
supply chains. In: Dekker, R., Fleischmann, M., Inderfurth, K., van
Wassenhove, L.N. (Eds.), Reverse Logistics e Quantitative Models for Closed-
loop Supply Chains. Springer, Berlin, pp. 295e312.
El Korchin, A., Millet, D., 2011. Designing a sustainable reverse logistics channel: the 18
generic structures framework. Journal of Cleaner Production 19 (6e7), 588e597.
Faruk, A.C., Lamming, R.C., Cousins, P.D., Bowen, F.E., 2001. Analyzing, mapping and
managing environmental impacts along supply chains. Journal of Industrial
Ecology 5 (2), 13e36.
Forrester, J.W., 1961. Industrial Dynamics. Productivity Press, Cambridge, MA, USA.
Galbreth, M.R., Blackburn, J.D., 2006. Optimal acquisition and sorting policies for
remanufacturing. Production and Operations Management 15 (3), 384e392.
Georgiadis, P., Vlachos, D., Iakovou, E., 2005. A system dynamics modeling frame-
work for the strategic supply chain management of food chains. Journal of Food
Engineering 70 (3), 351e364.
Georgiadis, P., Besiou, M., 2008. Sustainability in electrical and electronic equip-
ment closed-loop supply chains: a system dynamics approach. Journal of
Cleaner Production 16 (15), 1665e1678.
Geyer, R., Jackson, T., 2004. Supply loops and their constraints: the industrial
ecology of recycling and reuse. California Management Review 46 (2), 55e73.
Grimes-Casey, H.G., Seager, T.P., Theis, T.L., Powers, S.E., 2007. A game theory
framework for cooperative management of refillable and disposable bottle
lifecycles. Journal of Cleaner Production 15 (17), 1618e1627.
Hannon, B., Ruth, M., Meadows, D.H., 2001. Dynamic Modeling (Modeling Dynamic
Systems), second ed. Springer, New York, USA.
Hennet, J.C., Arda, Y., 2008. Supply chain coordination: a game-theory approach.
Engineering Applications of Artificial Intelligence 21 (3), 399e405.
IMF, 2007. Appendix 1.2 climate change: economic impact and policy responses. In:
Chapter 1. Global Prospects and Policy Issues. World Economic Outlook. Inter-
national Monetary Fund, Washington D.C.
IMF, 2008. The Fiscal Implications of Climate Change. International Monetary Fund,
Washington D.C.
Jacobs, B., Subramanian, R., 2012. Sharing responsibility for product recovery across
the supply chain. Production and Operations Management 21 (1), 85e100.
Keohane, N.O., 2009. Cap and trade, rehabilitated: using tradable permits to control
U.S. greenhouse gases. Review of Environmental Economics and Policy 3 (1),
42e62.
196 F. Mafakheri, F. Nasiri / Journal of Cleaner Production 59 (2013) 185e196
Kumar, S., Yamaoka, T., 2007. System dynamics study of the Japanese automotive
industry closed loop supply chain. Journal of Manufacturing Technology Man-
agement 18 (2), 115e138.
Lifset, R., 1993. Take it back: extended producer responsibility as a form of
incentive-based environmental policy. Journal of Resource Management and
Technology 21 (4), 163e175.
Mafakheri, F., Breton, M., Ghoniem, A., 2011. Supplier selection-order allocation: a
two-stage multiple criteria dynamic programming approach. International
Journal of Production Economics 132 (1), 52e57.
Nagarajan, M., Sosic, G., 2008. Game-theoretic analysis of cooperation among
supply chain agents: review and extensions. European Journal of Operational
Research 187 (3), 719e745.
Nasiri, F., Zaccour, G., 2009. An exploratory game-theoretic analysis of biomass
electricity generation supply chain. Energy Policy 37 (11), 4514e4522.
Norris, G.A., Croce, F.D., Jolliet, O., 2002. Energy burdens of conventional
wholesale and retail portions of product life cycles. Journal of Industrial Ecology
6 (2), 59e69.
Pokharel, S., Muth, A., 2009. Perspectives in reverse logistics: a review. Resources,
Conservation and Recycling 53 (4), 175e182.
Prahinski, C., Kocabasoglu, C., 2006. Empirical research opportunities in reverse
supply chains. Omega 34 (6), 519e532.
Preton, 2010. Environmental Issues Associated with Toner and Ink Usage. Preton
Ltd. White Paper No. 1403010.
Qingli, D., Hao, S., Hui, Z., 2008. Simulation of remanufacturing in reverse supply chain
based on system dynamics. In: The 5th IEEE International Conference on Service
Systems and Service Management, Melbourne, Australia, June 30eJuly 02, pp.1e6.
Sarkis, J., 2003. A strategic decision framework for green supply chain management.
Journal of Cleaner Production 11 (4), 397e409.
Savaskan, R.C., Bhattacharya, S., Van Wassenhove, L.N., 2004. Closed-loop supply
chain models with remanufacturing. Management Science 50 (2), 239e252.
Savaskan, R.C., Van Wassenhove, L.N., 2006. Reverse channel design: the case of
competing retailers. Management Science 52 (1), 1e14.
Seuring, S., Muller, M., 2008. From a literature review to a conceptual framework for
sustainable supply chain management. Journal of Cleaner Production 16 (15),
1699e1710.
Shi, C.D., Bian, D.X., 2009. The revenue sharing contract design of the closed-loop
supply chain Coordination with loss-averse retailer. In: The 2nd International
Conference on Business Intelligence and Financial Engineering, Beijing, China,
July 24e26.
Simaan, M., Cruz, J.B., 1973a. On the Stackelberg strategy in Nonzero-sum games.
Journal of Optimization Theory and Applications 11 (5), 533e555.
Simaan, M., Cruz, J.B.,1973b. Additional aspects of the Stackelberg strategy in nonzero-
sum games. Journal of Optimization Theory and Applications 11 (6), 613e626.
Srivastava, S.K., 2007. Green supply-chain management: a state-of-the-art literature
review. International Journal of Management Reviews 9 (1), 53e80.
Staples, 2012. Recycling and Eco-services: Toner and Ink Cartridges. SAPLES Inc.
http://www.staples.com/sbd/cre/marketing/easy-on-the-planet/recycling-and-
eco-services.html (last accessed June 15, 2012).
Stock, T., Speh, T., Shear, H., 2002. Many happy (product) returns. Harvard Business
Review 80 (7), 16e17.
Su, X., 2009. Consumer returns policies and supply chain performance.
Manufacturing & Service Operations Management 11 (4), 595e612.
Vachon, S., Klassen, R.D., 2006. Green project partnership in the supply chain: the case
of the package printing industry. Journal of Cleaner Production 14 (6-7), 661e671.
VENSIM, 2010. The Ventana Simulation Environment (VENSIM) e Version 5.9e.
Ventana Systems Inc (Copyright
1988e2010). http://www.vensim.com/.
Vlachos, D., Georgiadis, P., Iakovou, E., 2007. A system dynamics model for dynamic
capacity planning of remanufacturing in closed-loop supply chains. Computers
& Operations Research 34 (2), 367e394.
Walls, M., Palmer, K., 2001. Upstream pollution, downstream waste disposal, and
the design of comprehensive environmental policies. Journal of Environmental
Economics and Management 41 (1), 94e108.
Yan, N., 2012. Dynamic models and coordination analysis of reverse supply chain
with remanufacturing. Physics Procedia, Part B 24, 357e1363.
Yao, Z., Leung, S.C.H., Lai, K.K., 2008. Manufacturer’s revenue-sharing contract and
retail competition. European Journal of Operational Research 186 (2), 637e651.
Zhang, Y., Dilts, D., 2004. System dynamics of supply chain network organi-
zation structure. Information Systems and e-Business Management 2 (2e3),
187e206.
Nomenclature
Q(t): Cumulative Reclaimed Cartridges (Unit)
T: Modeling Scope (Month)
q(t): Return Rate of Used Cartridges (Unit/Month)
r(t): Incentive Attractiveness (Dimensionless)
s(t): Cartridge Sale (Unit/Month)
Prc: Unit Refilling Price by Competition ($/Unit)
Pnr: Retail Price of New Cartridge ($/Unit)
a(t): Retailer’s Incentive to Consumer ($/Unit)
E(t): Cumulative Carbon Mitigation (Ton)
e(t): Carbon Mitigation (Ton/Month)
e1: Carbon Mitigation per Refurbished Cartridge (Ton/Unit)
e2: Carbon Mitigation per Recycled Cartridge (Ton/Unit)
b(t): Ratio of Refurbished Cartridges (Dimensionless)
pM(t): Manufacturer’s Payoff ($)
gM(t): Manufacturer’s Immediate Gain ($/Month)
u˛½0; 1: Revenue Sharing Incentive Ratio (Dimensionless)
VM(t): Manufacturer’s Revenue ($/Month)
CM(t): Manufacturer’s Total Cost ($/Month)
pR(t): Retailer’s Payoff ($)
gR(t): Retailer’s Immediate Gain ($/Month), where (gR(t ¼ 0) ¼ 0)
VR(t): Retailer’s Revenue ($/Month)
CR(t): Retailer’s Total Cost ($/Month)
PR(t): Retailer’s Net Payoff ($)
l˛½0; 1: Return Incentive Ratio (Dimensionless)
i: Incentive Offered By Competition ($/Unit)
y: Carbon Tax Rate ($/Ton)
3 (t): Net Carbon Emissions (Ton/Month)
3 : Carbon Emission per Sold Cartridge (Ton/Unit)
h: Carbon Credit Trading Price ($/Ton)
k(t): Carbon Emissions Cap (Ton/Month)
k: Regression Rate of Carbon Cap (Dimensionless)