Carbon footprint and responsiveness trade-offs in supply chain network design

Abstract

Concern related to sustainability and greenhouse gases has grown among citizens as well as firms, which are increasingly committing to carbon emission reduction targets. However, firms׳ emissions come from direct and indirect sources, and from the different stages of their supply chain. Therefore, comprehensive supply chain approaches are essential to ensure the cost-effectiveness of carbon management strategies. These approaches should capture operational and environmental trade-offs arising from the interaction between different supply chain processes such as procurement, manufacturing, transport and inventory management. Considering all these processes, we propose a model for supply chain network design that takes demand uncertainty into account and includes decisions on supply chain responsiveness under different carbon policies: caps on supply chain carbon footprints, caps on market carbon footprints, and carbon taxes. Our model supports the analysis of the effect of different policies on costs and optimal network configuration and allows us to distinguish between different product types: functional or innovative products. With detailed numerical examples, we illustrate the type of analysis and managerial insights that can be derived with our model, which include the assessment of supply chains׳ potential for carbon abatement, the study of the effect of different carbon policies on supply chain costs and network design, the analysis of the impact of various product characteristics, the test of an alternative profit maximisation model, and the determination of the value of a supply chain carbon tax that should induce specific levels of carbon abatement.