Compound effect of closing the loop and servitization in supply chains

Companies generally strive to become more sustainable by changing their business models or their supply chain structures. In this study, we evaluate the two aspects together; i.e., the compound effect of adopting servitization as a business model and closing the loop in a two-tier supply chain. To this end, we focus on four scenarios as (i) selling and (ii) servitization in forward supply chains and (iii) selling and (iv) servitization in closed-loop supply chains. We evaluate the four settings in terms of economic and environmental performance. We find that both closing the loop and shifting from selling to servitization in the downstream improves the environmental performance of the supply chain. Moreover, closing the loop tends to increase the profits of the actors. However, the retailer’s switch from selling to servitization significantly deteriorates the manufacturer’s profit although it improves the retailer’s profit.