Improving sustainability and social responsibility of a two-tier supply chain investing in emission reduction technology

This paper studies a retailer-dominated supply chain including a single upstream manu-facturer that produces two substitutable products and a single downstream retailer that undertakes corporate social responsibility activities. The manufacturer is also regulated by a cap-and-trade policy. We first compare two optimization models for a decentralized sys-tem, one that does and one that does not incorporate emission reduction technology, to show that the profit of each system member in the former is higher than that in the lat -ter, while the opposite is true for carbon emissions when the technology level invested by the manufacturer is higher than a threshold. To test the performance of the decentralized model that incorporates emission reduction technology, we model a centralized system and reveal that the system profit in the decentralized model is increased and the corre-sponding carbon emissions generated during production can be reduced. These findings motivate us to propose a revenue and cost-sharing contract to coordinate the decentral-ized system. The result shows that the economic and environmental sustainability of the decentralized system can be improved. Finally, several managerial implications are derived by conducting a numerical study. (c) 2021 Elsevier Inc. All rights reserved.

Automated summary

This study compares two optimization models in a decentralized system, one with emission reduction technology and one without, finding that the former results in higher profits for each system member, but opposite for carbon emissions when the manufacturer's technology level exceeds a threshold. Testing the decentralized model with emission reduction technology, the system profit increases and corresponding carbon emissions decrease, leading to the proposal of a revenue and cost-sharing contract to coordinate the decentralized system and improve its economic and environmental sustainability.