Effects of corporate social responsibility activities in a two-stage assembly production system with multiple components and imperfect processes

Abstract

Implementation of corporate social responsibility (CSR) activities has been shown to improve the financial performance of many firms, and the effects are particularly evident in original brand manufacturers (OBMs). This paper studies the effects of two common CSR activities (social donations and green industrial development) on a two-stage assembly production system with multiple components and imperfect processes under the assumption that demand depends on selling price and CSR impact. The proposed problem is formulated as an economic production quantity (EPQ) model aimed at profit maximization, in which the decision variables include the production run time of each process, expenditures on social donations, and green industrial development. Our results prove that an optimal solution exists, and that it is unique. An algorithm for the computation of the optimal solution is also provided. The efficacy of the proposed model is demonstrated via numerical modeling of a footwear OBM in Taiwan. Sensitivity analysis revealed a number of managerial insights. For example, the results obtained under CSR operations can be compared with those obtained under non-CSR operations (under various parameters settings) to determine an opportune moment for the execution of CSR.