An analysis of the impact of negative CSR ‘forced labour’ parameter on the profitability of supply chain contracts

Abstract

This paper provides a mathematical model to analyse the impact of a negative corporate social responsibility (CSR) parameter that for ‘forced labour’, on supply chain profitability based on coordination contracts. Four types of supply chain coordination contract are developed and benchmarked against set performance indices employing sensitivity analysis and non-linear optimization techniques. Nash ‘static’ and Stackelberg ‘dynamic’ models are employed to represent the ‘gameplay’ between the ‘manufacturer’ and ‘retailer’ in a supply chain. The key inputs are average demand and ‘forced labour’ ratios, whereas key performance indicators are advertising, inventory and pricing costs.Our results indicate that by reducing the proportion of ‘forced labour’ for both members of the supply chain, the overall profitability increases in a Nash static gaming context. However, the contractual relationships in a Stackelberg dynamic situation provide a different picture. Here, if the ‘retailer’ assumes the leadership role, cost-sharing contracts increase the profitability for both partners. However, if the ‘manufacturer’ assumes the leader, the profit-sharing contract leads to the highest overall profit. Furthermore, sensitivity analysis confirms that an ideal situation is one in which the ‘forced labour’ ratio approaches ‘zero’, where the profitability of the retailer is usually higher than that of the manufacturer. Previous researchers have used ‘survey-based’ methods to develop proportional or ‘mediating’ relationships to measure the impact of CSR on supply chain profitability. This paper addresses the associated gap by providing a game theoretic-based non-linear mathematical model to assess the direct impact of negative CSR on supply chain profitability and benchmarks the performance of different supply chain contracts.