Analysis of the Impact of Remanufacturing Process Innovation on Closed-Loop Supply Chain from the Perspective of Government Subsidy

Abstract

Efficient and low-cost remanufacturing can be achieved through process innovation. Consequently, the question of whether government subsidies for remanufacturing process innovation will stimulate improvement in this area and thus affect the closed-loop supply chain is worth discussing. To answer this question, we establish a closed-loop supply chain model consisting of a manufacturer and a retailer, taking into account both remanufacturing process innovation and government subsidy. This is done in order to explore the impact of remanufacturing process innovation on the closed-loop supply chain from the perspective of government subsidies. Moreover, the government subsidizes the manufacturer according to the improvement of remanufacturing process innovation levels. Specifically, we analyze the optimal decisions and the social welfare in two models—the benchmark model without government subsidy, and the government subsidy model. Our main findings are threefold. The optimal decisions of the two models vary with the proportion of new products’ production cost and remanufactured products’ production cost. The government subsidy for process innovation does not necessarily improve the profits of the manufacturer, the retailer, and the supply chain system. Moreover, there is a threshold; the government subsidy can hurt the retailer’s profits, and the retailer has no motivation to participate in the sale of new products when the government subsidy is below that threshold. The government subsidy for process innovation does improve overall social welfare and has a lesser environmental impact. The conclusions are also verified by numerical analysis.