Improving corporate social responsibility in a supply chain through a new revenue sharing contract

Abstract

Due to the social and environmental impacts of industrial activities in supply chains, corporate social responsibility (CSR) has become critical for many international companies. This paper aims to integrate CSR into supply chain coordination. A new revenue sharing contract embedding corporate social responsibility (RS-CSR) is proposed for coordinating a two-tier supply chain. The RS-CSR contract requires that the manufacturer invest in CSR and charge the retailer a wholesale price. After the retailer sells products, it will return a ratio of its revenue to the manufacturer. A mathematical model is proposed to determine the optimal CSR investment, the wholesale price, and the revenue sharing ratio such that channel coordination is achieved. Two different objectives of the supply chain are discussed: profit maximizing and CSR performance maximizing. Numerical examples show that the RS-CSR contract can simultaneously achieve the following objectives under proper parameter settings: (1) improve CSR performance; (2) improve total supply chain profits; (3) ensure that each partner in the supply chain can benefit from the contract. The RS-CSR contract can be designed to achieve different level of CSR performance, subject to corporate culture of the SC and how the SC expects its profits and CSR performance. This study also provides theoretical support and operational procedures for SC managers to integrate CSR into business routines.