Coordinate the economic and environmental sustainability via procurement outsourcing in a co-opetitive supply chain

Abstract

The increasing concern about sustainability prompts the original equipment manufacturers (OEMs) to make efforts for sustainable technology innovations, thereby attracting customer demand. However, the increased demand results in more resource consumption and hurts the environmental sustainability deterioration. In this paper, we coordinate the economic sustainability (because of the increased demand and profits) and the environmental sustainability (because of the reduced demand and resource consumption) through procurement outsourcing. We develop a co-opetitive supply chain consisting of an OEM and a competitive contract manufacturer (CM), where the OEM faces the strategic decisions of procurement outsourcing to the CM. In the sense of economic sustainability, we derive three interactive effects that make the OEM prefer procurement outsourcing when its market potential is either low or high. The main reason is that the OEM could drag down the competitive CM with a high component/material wholesale price. In the sense of environmental sustainability, we find that there exists incentive conflict between the economic and environmental sustainability because of the OEM’s priority of achieving economic sustainability. We further identify the “sustainable-effort-dilemma” to show that the coordination of economic and environmental sustainability is attainable when the OEM chooses procurement outsourcing.