Green process innovation through Industry 4.0 technologies and supply chain coordination

Abstract

This paper investigates a dynamic supply chain model in which a supplier decides both the wholesale price and the green process innovation investments while a manufacturer sets the retail price. We refer to Industry 4.0 technologies like Robotics, Automated Guided Vehicles and 3D printing, which allow firms to reduce the amount of resources wasted and the emissions, generating an overall environmental benefit as well as a reduction of the marginal production cost. The environmental performance positively influences the demand, which leads to larger production volume and in turn damages the environmental performance via negative externalities (e.g., emissions). We resolve this operational trade-off and compare an uncoordinated setting to a revenue sharing contract complemented by a collaborative program. We show that the overall benefit of environmental cooperation in green process innovation entails the existence of a profit-Pareto-improving region. Nevertheless, the maximum environmental performance fails to occur in the profit-Pareto-improving region, which shows the mismatch between economic and environmental performance. Moreover, a wholesale price contract might help to enhance environmental performance while supply chains might prefer a revenue sharing contract or vertical integrated chain to maximize profits.