A coordination mechanism through relational contract in a two-echelon supply chain

Abstract

To promote social responsibilities of transnational corporation within the present world where such necessary corporation is seriously missing, this paper explores issues of decision-making and coordination of such a two-echelon supply chain that consists of a contract supplier and a dominant manufacturer. Considering the main reasons behind the lack of social responsibilities of multinational corporations, this work develops a model with punishment. Based on this model, we obtain the optimal decision for the supply-chain members under either decentralized decision-making or centralized decision-making. And we analyze whether the penalty rate will have an impact on the input of corporate social responsibility and how it will affect the self-interests of supply chain members. Ultimately, by exploring the decision variables of companies that practice stronger corporate social responsibility, we compare and analyze our models to draw several interesting and practically useful conclusions.