An analysis of performance, pricing, and coordination in a supply chain with cloud services: The impact of data security

Abstract

As an important supporting technology for Industry 4.0 and smart manufacturing, cloud computing technology facilitated the sharing of digital services and reduced energy consumption. However, concerns about data security may cause firms to hesitate to adopt cloud services. How to coordinate their supply and demand and estimate the economic and environmental impacts are not well understood. To address this research gap, this study investigates a supply chain consisting of a cloud-service provider and a manufacturer and a collaboration mechanism that may coordinate both parties’ interests. We employ game theory to design stylized models of two supply chain structures (centralised and decentralised) and derive each firm’s optimal product pricing, profits, and the entire supply chain under different scenarios. The results show that considering cloud-service data security, a cloud-service supply chain cannot achieve coordination in the absence of intervention, while once coordinated it could be more environmentally friendly than the case without coordination. Furthermore, we propose a revenue-sharing contract to incentivise the cloud-service provider to cooperate with the manufacturer and identify the conditions for data security from which both can benefit. Interestingly, enhancing data security does not always help the entire supply chain, and higher data security may worsen it. Finally, numerical examples were derived to demonstrate our conclusions. Our study highlights supply chain coordination in a cloud-service environment and provides significant insights for participants who value data security and carbon–neutral innovation solutions.