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Strategic incentives for complementary producers to innovate for efficiency and support sustainability

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  • Dobson, Paul W.
  • Chakraborty, Ratula

Abstract

Process innovation that increases operational efficiency through a step change improvement in resource utilisation and waste reduction can help boost manufacturing profitability but also offer broader social and environmental benefits. Business owners, though, might be reluctant to make investments in process innovation unless they serve a pure profit motive. While not guided by altruistic intentions, the owners might nonetheless see a strategic benefit in providing their managers with remuneration incentives supported by public commitments to increase innovation effort for more efficient, lean and sustainable operations. We model such a possibility amongst producers controlling the supply of essential complementary components that go into the assembly of competitively produced composite finished goods. We demonstrate the ruinous effect of independent strategic delegation to managers of powerful complementary producers. Instead, collaboration amongst the owners of the complementary producers to establish common managerial incentives can increase innovative effort to raise efficiency that benefits the whole industry supply chain, end consumers, and social welfare. Government-backed voluntary agreements with sector-wide commitments may be helpful in encouraging process innovation to support lean supply chains and sustainability.

Suggested Citation

  • Dobson, Paul W. & Chakraborty, Ratula, 2020. "Strategic incentives for complementary producers to innovate for efficiency and support sustainability," International Journal of Production Economics, Elsevier, vol. 219(C), pages 431-439.
    • Handle: RePEc:eee:proeco:v:219:y:2020:i:c:p:431-439
    DOI: 10.1016/j.ijpe.2018.02.001
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    2. Ge Zehui & Ren Zhengkun & Jia Yiheng & Hu Qiying, 2021. "A Bounded Commitment in Vertical Collaborations of New Product Development," Journal of Systems Science and Information, De Gruyter, vol. 9(2), pages 154-174, April.
    3. Lingzhi Shao & Qianwen Liu, 2022. "Decision-Making and the Contract of the Complementary Product Supply Chain Considering Consumers’ Environmental Awareness and Government Green Subsidies," IJERPH, MDPI, vol. 19(5), pages 1-27, March.
    4. Ge, Zehui & Hu, Qiying & Goh, Chon-Huat & Zhao, Rui, 2021. "Action-dependent commitment in vertical collaborations: The effect of demand-creating innovations in a supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 147(C).
    5. Cheng, Fei & Chen, Tong & Chen, Qiao, 2022. "Cost-reducing strategy or emission-reducing strategy? The choice of low-carbon decisions under price threshold subsidy," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 157(C).
    6. Kailing Liu & Quanxi Li & Haowei Zhang, 2022. "Analysis of the Impact of Remanufacturing Process Innovation on Closed-Loop Supply Chain from the Perspective of Government Subsidy," Sustainability, MDPI, vol. 14(18), pages 1-25, September.

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