Abstract
The extant sustainability literature has argued that supply chain (SC) members can gain both financial and operational benefits from a joint sustainability development (JSD) effort. However, no guidance has been provided on how SC members could collaborate on their sustainability development efforts to achieve the intended economic performance. This study addressed this research gap by proposing different contractual governances, based on a game-theoretic approach, for both manufacturer and retailer to better engage in JSD. Specifically, multiple JSD contractual arrangements regarding profit and associated cost sharing between manufacturers and retailers were defined and evaluated. Our analyses show that the manufacturer behaves opportunistically when the impact of a retailer’s effort on consumer demand is low. In other words, the retailer increases its sustainability effort, but not the manufacturer. However, such opportunistic behavior can be removed under a revenue sharing arrangement. That is, the manufacturer becomes cooperative with the retailer, and both retailer and manufacturer increase their JSD efforts. Several numerical experiments were conducted to assess the effectiveness of various revenue sharing arrangements (no sharing, partial profit sharing, and total profit sharing) in devising and implementing a mutually beneficial JSD program. Accordingly, several guidelines for the SC JSD implementation are provided.
Highlights
Corporate sustainability has received continuous attention from consumers and other stakeholders, and all businesses face market pressure to develop and manage sustainable practices across their value chains (e.g., [1,2])
The extant sustainability literature has highlighted that supply chain (SC) members can gain both financial and operational benefits from a SC-wide sustainability, and joint sustainability development (JSD) had been viewed as an ideal approach for creating a sustainable SC
No guidance has been provided on how SC members could collaborate on their sustainability development efforts to achieve the intended economic performance
Summary
Corporate sustainability has received continuous attention from consumers and other stakeholders (e.g., supply chain partners, government, NGOs, local communities, etc.), and all businesses face market pressure to develop and manage sustainable practices across their value chains (e.g., [1,2]). Nike, an American multinational sporting goods manufacturer, has invested heavily ($25 million annually) [5] in providing better working conditions and more environmentally friendly products since its child labor scandal in 1996 In addition to their preference on “greener” products, consumers are becoming more aware and critical of retailers’ and manufacturers’ roles and responsibilities in sustainability initiatives [6]. Narasimhan et al [14], for example, found that the companies farther downstream in the SC (closer to final consumers) achieve greater financial benefits from Forest Stewardship Council (FSC) certification, a widely acknowledged international standard in the management and supply of sustainably produced timber This finding alludes to the idea that upstream and downstream companies have different performance impacts of their sustainability efforts depending on their SC positions, which highlights the necessity of SC members’ coordinated efforts on sustainability initiative.
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