Green supply chain management through call option contract and revenue-sharing contract to cope with demand uncertainty

Green supply chain management (GSCM) could be applied to enhance environmental and economic goals simultaneously; nevertheless, according to The University of Chicago Booth report, the overwhelming impacts of the COVID-19 epidemic have caused high fluctuations in market demand. Hence, green supply chain (SC) managers have faced challenges in the decision-making process. Motivated by this issue, we investigate a two-echelon SC network containing one retailer and two suppliers (a non-green supplier and a green supplier). The non-green supplier produces a customary product and has a limited production capacity. Inspired by Coors Brewery Company, the green supplier produces a recyclable product with sufficient production capacity; the retailer faces demand uncertainty and is responsible for bringing back the end-of-life products to the green supplier for the recycling process. In this study, besides decentralized and centralized decision scenarios, we survey two kinds of contracts, i.e., a call option contract and a revenue-sharing contract, which the green supplier offers as risk-sharing policies to motivate the retailer to increase its order quantity. We found that the two parties could agree to coordinate the channel by negotiating the optimal terms of the recommended contracts (i.e., call option contract terms: option price and exercise price, revenue-sharing contract term: wholesale price). Furthermore, our results show that both proposed contracts create a win-win situation for each member and heighten the profitability of the entire SC. By comparing the two contracts, we notice that the green supplier would like to offer the call option contract, and the retailer desires to accept the revenue-sharing contract in return.

Automated summary

The study investigates how cooperation agreements in a supply chain network can motivate retailers to increase order quantity, thus enhancing profit for the whole supply chain and creating a win-win situation.