A Three-Echelon Retailer-Led Closed Loop Supply Chain with Substitutable Products Coordination: Real-World Beverage Industry Application

Document Type : Review Paper


Prague University of Economics and Business, Faculty of Informatics and Statistics, Department of Econometrics, nam. W. Churchilla 1938/4, 130 67 Praha 3


In this paper, we consider a real-world retailer-led three-echelon CLSC with substitutable products in a beverage industry consisting of a manufacturer, a distributor, and a retailer. The manufacturer produces the same product in two different types of packaging, one being a returnable glass bottle (RGB) and the other being a disposable bottle (OW) and the consumer chooses depending on their preference. The RGB is then returned via the specialized distributor, who must ensure the sorting of the returned bottles and their reverse logistics back to the manufacturer. We analyse the CLSC with the dominant role of the retailer and compare the Stackelberg equilibrium with the Nash equilibrium where all CLSC members are equally strong. We prove that the CLSC can make higher profits if the product mix is skewed towards the RGB product. Our analysis also shows that a retailer-led CLSC can be coordinated with an RS contract to achieve a fair share of a double increase in total profits for all partners if the retailer manages its leadership position and maximises its bargaining power. From a game theoretic perspective, we show that our Stackelberg equilibrium is also acceptable in the pure vertical Nash game. Furthermore, the sensitivity analysis explains why it is so difficult to negotiate and coordinate a real CLSC in a Fast Moving Consumer Goods (FMCG) sector, because it is unlikely that the dominant retailer would participate in the coordination negotiations and give up its margins for the benefit of all CLSCs, which is necessary to ensure the effect of reducing prices for the final consumer. This is all set in the real beverage CLSC using actual cost parameters thus providing valuable managerial insights.


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