Risk Management in Closed-loop Supply Chains: A Methodology Towards Fair Distribution of Financial Gains

The transition from linear to closed-loop supply chains can generate financial gains through the recirculation of residual materials. However, closed-loop supply chains face risks of financial losses that may impact all stakeholders. Therefore, to mitigate stakeholders’ risk aversion and ensure their profitability, a systemic risk management approach for closed-loop supply chain managers is necessary. This article proposes a novel methodology to support a fair distribution of the financial gains resulting from the circular economy, based on stakeholders’ contributions within the closed-loop supply chain, by sharing risks among them. The main contributions of this study include the conceptualization of four risk categories to assess (pre-existing, new, individual, and interrelated), and the definition of eight stakeholders’ contribution criteria (categorized into investment, responsibility, control, and qualification). The risk management methodology was applied to a real case study of a closed-loop supply chain involving two stakeholders for the reuse of spring street sweepings in winter road maintenance. The results demonstrate that: i) the transition generates a $26,068 gain (67% for the road authority and 33% for the service provider), ii) risk assessment identifies an additional $4,666 gain for the service provider due to risk reduction, and iii) risk sharing enables a fair distribution of the total $30,734 gain based on stakeholders’ contributions (55% for the road authority and 45% for the service provider). This study should encourage closed-loop supply chain managers to address risks of financial losses to overcome stakeholders’ reluctance to engage and collaborate in closed-loop supply chains, thereby strengthening their implementation.