Emission abatement and procurement strategies in a low-carbon supply chain with option contracts under stochastic demand

Abstract

With the development of low-carbon economy, we discuss the decisions of carbon emission abatement and order quantity in a supply chain consisting of one manufacturer and one retailer under the stochastic demand. We analyze the models in the centralized and decentralized scenarios to find that the profits of all participants are improved, and carbon abatement can be increased. We further propose a unidirectional option (UO) contract contracts and a bidirectional option (BO) contract to coordinate supply chain members and analyze their different impacts on members. The results show that both contracts can effectively improve corporate profits and curb carbon emissions, but the UO contract is more beneficial to manufacturer, while the BO contract is more beneficial to retailer and the whole supply chain as well as the environment owing to its flexibility to cancel or return products not exceeding the option order quantity. Further, the numerical examples are given to analyze the influences of the retail price, wholesale price and demand volatility on the optimal strategies of all participants. Specially, we observe that option contracts have strong applicability, and if cooperating with option contracts, firms should pay more attention to the value of option price than the exercised option price.