The single period inventory model under dual sourcing and product carbon footprint constraint

Abstract

Important drivers for environmental sustainability efforts in purchasing and supply management are top management initiatives and compliance with laws and regulations. On the other hand market forces are largely ignored although it is shown that the product carbon footprint contained on the product׳s eco-label influences the purchasing decisions of consumers if it is disclosed by several companies in an industry. Then the product carbon footprint turns out to be a relevant competitive differentiator, i.e. the company with lower emissions can increase its market share. In this paper we consider the single period inventory model with product carbon footprint constraint. An upper bound for the carbon footprint is specified as a benchmark derived either from the company׳s environmental target or from an industry standard. In the case of one supply option the optimal order quantity is characterized by a one-sided control limit policy. Especially for high-profit products the environmental constraint is binding thus has a negative impact on the economic performance, i.e. expected profit. If a second supply option exists in the resulting dual sourcing framework with quick response two scenarios with different additional costs and emissions for the second emergency order are considered. In the first scenario for both options the same supplier is used. It applies to an offshore supplier because a fast transportation mode is considered. Here the structure of the optimal first order quantity is a two-sided control-limit policy. In scenario two the second order comes from a different (onshore) supplier. By comparing the fast and the onshore scenario the trade-off between economic (expected profit) and environmental (expected emissions) performances is discussed.