Optimal strategy for a green supply chain considering shipping policy and default risk

Abstract

In this paper, we study the optimal strategy for a green supply chain considering shipping policy and default risk, in which a type of low-carbon product is first produced by a single manufacturer and then is delivered to a single retailer. Under the assumption that free shipping should be offered to the retailer if his or her order quantity is up to the Free Shipping Quantity (FSQ) predefined by the manufacturer, as the strategy of the retailer, both the order quantity and the shipping will be decided before making a deal. In the case of having shipping cost, we propose a strong rebate contract and strong revenue-sharing contract, then find that the strong rebate contract can entice retailer to order more, but the strong revenue-sharing contract may decrease retailer’s order quantity. As for the case having free shipping, our paper shows a weak rebate contract and weak revenue-sharing contract in the green supply chain. We find that the increase of a weak rebate (revenue-sharing) rate not only leads to a higher order quantity, but also generates a higher expected profit. Numerical results indicate that a higher government green subsidy offered to the manufacturer can lead to a higher social welfare, but a higher government green subsidy provided to the retailer may cause a lower social welfare.