Coordinating a Socially Responsible Supply Chain with Random Yield under CSR and Price Dependent Stochastic Demand

Abstract

Corporate social responsibility plays an important role in associating customers with socially responsible firms. Faithful consumers are willing to give extra money for commodities or services that incentive the firms to take corporate social responsibility (CSR). This article studies the coordination issue in a two-stage supply chain which is composed of a manufacturer and a retailer who sells a short shelf-life product in a single period. The manufacturer exhibits CSR and simultaneously determines its CSR investment and production quantity, as his production process is subject to random production yield. On the other hand, the retailer decides the selling price and order quantity simultaneously while facing price and CSR sensitive stochastic demand. We construct an agreement between the retailer and the manufacturer which comprises a revenue-sharing and a cost-sharing contract. We show that the supply chain can perfectly coordinate under this composite contract and allow arbitrary allocation of total channel profit to ensure that both the retailer and the manufacturer are benefited. We further analyze the impact of randomness in production as well as the effect of CSR investment on the performance of the entire supply chain. A numerical example is provided to explain the developed model and gain more insights.

Keywords

• random yield
• ِِِdemand uncertainty
• corporate social responsibility
• channel coordination
• pricing