Supply Chain Coordination and Consumer Awareness for Pollution Reduction

Bowon Kim,Jeong Sim

doi:10.3390/su8040365

Abstract

To understand the dynamics of the manufacturer’s effort to reduce pollution in a supply chain consisting of manufacturer, retailer, and consumers, we analyze four cases according to consumer awareness of the pollution’s harmful effect, i.e., environmentally aware versus ignorant, and supply chain coordination, i.e., competitive versus cooperative. Applying differential games, we derive managerial implications: the most significant is that the supply chain coordination strategy becomes irrelevant to reducing the pollution, if the consumers are not environmentally aware or sensitive enough. It highlights the critical role played by the consumer awareness in curbing the pollution in the supply chain. In addition, we find the transfer price and the potential market size are important factors to determine each case’s relative effectiveness. Under a regular condition, where the transfer price from the retailer to the manufacturer is sufficiently high, the consumer-aware and competitive case can generate a better outcome in reducing the pollution than those with ignorant consumers. However, the opposite might occur if the transfer price is excessively low, giving the manufacturer little motivation to make an effort to reduce the pollution. For the cooperative supply chain, it is the potential market size that determines whether the consumer-aware case is better than the consumer-ignorant. In fact, it turns out that there is a stronger result, i.e., the feasibility condition enforces that the market is always big enough to make the consumer-aware cooperative case better than the consumer-ignorant cases. We further discuss managerial as well as policy implications of these analysis outcomes.

Highlights

These days, sustainable supply chain management is an immensely important issue both managerially and economically [1,2,3], as the environmental concerns are increasingly becoming central to global economic as well as political arenas
We define important questions to ask, i.e., “Which one, supply chain coordination or consumer awareness, is more conducive to reducing the pollution? Is there any relationship between the two in minimizing the pollution emission? Which one, government regulation or consumer awareness, is more powerful in curbing the pollution?” In order to answer these questions, we develop four differential game models, using two dimensions, consumer awareness and supply chain coordination
Theorem 1 highlights the importance of consumer awareness in reducing the pollution emitted by the manufacturer

Summary

Introduction

These days, sustainable supply chain management is an immensely important issue both managerially and economically [1,2,3], as the environmental concerns are increasingly becoming central to global economic as well as political arenas. There is a collective power of consumers, whose purchasing decision can send a strong signal to the business In this context, we define important questions to ask, i.e., “Which one, supply chain coordination or consumer awareness, is more conducive to reducing the pollution? Government regulation (i.e., government penalty) or consumer awareness, is more powerful in curbing the pollution?” In order to answer these questions, we develop four differential game models, using two dimensions, consumer awareness (aware versus ignorant consumers) and supply chain coordination (competitive versus cooperative). After analyzing these differential game models, we put forth significant managerial implications. We discuss the managerial implications of the research outcomes and suggest conclusions

Literature Review

Theorems

Numerical Examples

Discussion and Conclusions