Financing and Cost Sharing for a Supply Chain Under CSR - Sensitive Demand

Abstract

Downstream firms nowadays adopt either financing or cost sharing (CS) mechanisms to enhance the corporate social responsibility (CSR) performance of their suppliers. In this paper, we are interested in combining these two mechanisms in a supply chain. We consider a supply chain where the demand is CSR-dependent and where a large retailer shares the costs of CSR activities undertaken by a SME supplier. We investigate how the retailer’s choice of two financing mechanisms, namely Bank Financing (BF) and Reverse Factoring (RF), can influence the various operational decisions of both parties and the performance of the supply chain. Our findings demonstrate that no matter which financing mechanism is applied (BF or RF), CS leads to higher CSR effort and higher profits for all supply chain members. Moreover, a CS contract affects the financing preferences of both the retailer and the supplier. Managerially, a CS contract combined with an appropriate financing mechanism help to improve the CSR performance and the profitability of a supply chain.