IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v11y2019i13p3508-d243127.html
   My bibliography  Save this article

Incentive Mechanism for Sustainable Improvement in a Supply Chain

Author

Listed:
  • EuiBeom Jeong

    (Korea University Business School, Seoul 02841, Korea)

  • GeunWan Park

    (Institute of Knowledge Service, Hanyang University ERICA, Ansan 15588, Korea)

  • Seung Ho Yoo

    (Division of Interdisciplinary Industrial Studies, Hanyang University, Seoul 04763, Korea)

Abstract

In this study, we consider the issue of sustainable development in the supply chain consisting of an original equipment manufacturer (OEM) and a contract manufacturer (CM). We investigate how to facilitate the CM’s investment in the environmental quality of a product so as to properly respond to climate change. We introduce a quantity incentive contract, and obtain the optimal solution based on a Stackelberg game. The OEM, as the focal company, determines the level of the incentive, and the CM, responsible for product design and production, determines its level of environmental quality given the OEM’s incentive offer. To investigate the effectiveness of the quantity incentive contract and provide important implications, we analytically compare the quantity incentive contract with the basic wholesale price contract without any incentives and conduct numerical experiments. Our results reveal that the quantity incentive contract facilitates the CM’s investment in environmental quality, and enhances the environmental, market, and profit performance of not only the CM but also the OEM which pays the incentive. We also show that the quantity incentive contract is suitable to develop a long-term relationship between the OEM and the CM.

Suggested Citation

  • EuiBeom Jeong & GeunWan Park & Seung Ho Yoo, 2019. "Incentive Mechanism for Sustainable Improvement in a Supply Chain," Sustainability, MDPI, vol. 11(13), pages 1-18, June.
    • Handle: RePEc:gam:jsusta:v:11:y:2019:i:13:p:3508-:d:243127
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/11/13/3508/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/11/13/3508/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Murat Kaya & Özalp Özer, 2009. "Quality risk in outsourcing: Noncontractible product quality and private quality cost information," Naval Research Logistics (NRL), John Wiley & Sons, vol. 56(7), pages 669-685, October.
    2. Zhu, Wenge & He, Yuanjie, 2017. "Green product design in supply chains under competition," European Journal of Operational Research, Elsevier, vol. 258(1), pages 165-180.
    3. Yoo, Seung Ho & Cheong, Taesu, 2018. "Quality improvement incentive strategies in a supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 114(C), pages 331-342.
    4. Ghosh, Debabrata & Shah, Janat, 2012. "A comparative analysis of greening policies across supply chain structures," International Journal of Production Economics, Elsevier, vol. 135(2), pages 568-583.
    5. Ji, Jingna & Zhang, Zhiyong & Yang, Lei, 2017. "Comparisons of initial carbon allowance allocation rules in an O2O retail supply chain with the cap-and-trade regulation," International Journal of Production Economics, Elsevier, vol. 187(C), pages 68-84.
    6. Patrick W. Schmitz, 2005. "Allocating Control in Agency Problems with Limited Liability and Sequential Hidden Actions," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 318-336, Summer.
    7. Luo, Zheng & Chen, Xu & Wang, Xiaojun, 2016. "The role of co-opetition in low carbon manufacturing," European Journal of Operational Research, Elsevier, vol. 253(2), pages 392-403.
    8. Xu, Xiaoping & He, Ping & Xu, Hao & Zhang, Quanpeng, 2017. "Supply chain coordination with green technology under cap-and-trade regulation," International Journal of Production Economics, Elsevier, vol. 183(PB), pages 433-442.
    9. Liu, Zugang (Leo) & Anderson, Trisha D. & Cruz, Jose M., 2012. "Consumer environmental awareness and competition in two-stage supply chains," European Journal of Operational Research, Elsevier, vol. 218(3), pages 602-613.
    10. Pio Baake & Vanessa Schlippenbach, 2011. "Quality distortions in vertical relations," Journal of Economics, Springer, vol. 103(2), pages 149-169, June.
    11. Xie, Gang & Yue, Wuyi & Wang, Shouyang & Lai, Kin Keung, 2011. "Quality investment and price decision in a risk-averse supply chain," European Journal of Operational Research, Elsevier, vol. 214(2), pages 403-410, October.
    12. Baiyun Yuan & Bingmei Gu & Jin Guo & Liangjie Xia & Chunming Xu, 2018. "The Optimal Decisions for a Sustainable Supply Chain with Carbon Information Asymmetry under Cap-and-Trade," Sustainability, MDPI, vol. 10(4), pages 1-17, March.
    13. Chen, Xu & Wang, Xiaojun & Zhou, Mingmei, 2019. "Firms’ green R&D cooperation behaviour in a supply chain: Technological spillover, power and coordination," International Journal of Production Economics, Elsevier, vol. 218(C), pages 118-134.
    14. S A Starbird, 2001. "Penalties, rewards, and inspection: provisions for quality in supply chain contracts," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 52(1), pages 109-115, January.
    15. Yu, Yugang & Han, Xiaoya & Hu, Guiping, 2016. "Optimal production for manufacturers considering consumer environmental awareness and green subsidies," International Journal of Production Economics, Elsevier, vol. 182(C), pages 397-408.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Congli Su & Mingxi Wang, 2022. "Quality incentive contract design in government procurement for innovation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3665-3684, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chen, Wenbo, 2018. "Retailer-driven carbon emission abatement with consumer environmental awareness and carbon tax: Revenue-sharing versus Cost-sharingAuthor-Name: Yang, Huixiao," Omega, Elsevier, vol. 78(C), pages 179-191.
    2. Yoo, Seung Ho & Cheong, Taesu, 2018. "Quality improvement incentive strategies in a supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 114(C), pages 331-342.
    3. El Ouardighi, Fouad & Sim, Jeongeun & Kim, Bowon, 2021. "Pollution accumulation and abatement policies in two supply chains under vertical and horizontal competition and strategy types," Omega, Elsevier, vol. 98(C).
    4. Yang Tong & Yina Li, 2018. "External Intervention or Internal Coordination? Incentives to Promote Sustainable Development through Green Supply Chains," Sustainability, MDPI, vol. 10(8), pages 1-20, August.
    5. Linghong Zhang & Bowen Xue & Xiyu Liu, 2018. "Carbon Emission Reduction with Regard to Retailer’s Fairness Concern and Subsidies," Sustainability, MDPI, vol. 10(4), pages 1-28, April.
    6. Wen Jiang & Menglin Liu & Lu Gan & Chong Wang, 2021. "Optimal Pricing, Ordering, and Coordination for Prefabricated Building Supply Chain with Power Structure and Flexible Cap-and-Trade," Mathematics, MDPI, vol. 9(19), pages 1-22, September.
    7. Shengliang Zong & Chunyang Shen & Siping Su, 2022. "Decision Making in Green Supply Chain with Manufacturers’ Misreporting Behavior," Sustainability, MDPI, vol. 14(9), pages 1-28, April.
    8. Zhitao Xu & Adel Elomri & Shaligram Pokharel & Fatih Mutlu, 2019. "The Design of Green Supply Chains under Carbon Policies: A Literature Review of Quantitative Models," Sustainability, MDPI, vol. 11(11), pages 1-20, May.
    9. Xia, Senmao & Ling, Yantao & de Main, Leanne & Lim, Ming K. & Li, Gendao & Zhang, Peter & Cao, Mengqiu, 2022. "Creating a low carbon economy through green supply chain management: investigation of willingness-to-pay for green products from a consumer’s perspective," LSE Research Online Documents on Economics 116895, London School of Economics and Political Science, LSE Library.
    10. Yenipazarli, Arda, 2017. "To collaborate or not to collaborate: Prompting upstream eco-efficient innovation in a supply chain," European Journal of Operational Research, Elsevier, vol. 260(2), pages 571-587.
    11. Cao, Kaiying & Guo, Qiang & Xu, Yuqiu, 2023. "Information sharing and carbon reduction strategies with extreme weather in the platform economy," International Journal of Production Economics, Elsevier, vol. 255(C).
    12. Zhen Li & Hongming Zhu & Qingfeng Meng & Changzhi Wu & Jianguo Du, 2019. "Manufacturers’ Green Decision Evolution Based on Multi-Agent Modeling," Complexity, Hindawi, vol. 2019, pages 1-14, April.
    13. Fatemeh Zand & Saeed Yaghoubi, 2022. "Effects of a dominant retailer on green supply chain activities with government cooperation," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 24(1), pages 1313-1334, January.
    14. Qinghua Feng & Tong Liu, 2022. "Selection Strategy and Coordination of Green Product R&D in Sustainable Competitive Supply Chain," Sustainability, MDPI, vol. 14(14), pages 1-22, July.
    15. Yang, Huixiao & Luo, Jianwen & Wang, Haijun, 2017. "The role of revenue sharing and first-mover advantage in emission abatement with carbon tax and consumer environmental awareness," International Journal of Production Economics, Elsevier, vol. 193(C), pages 691-702.
    16. Jiguang Wang & Jianhong Chang & Yucai Wu, 2020. "The Optimal Production Decision of Competing Supply Chains When Considering Green Degree: A Game-Theoretic Approach," Sustainability, MDPI, vol. 12(18), pages 1-20, September.
    17. Chang Su & Xiaojing Liu & Wenyi Du, 2020. "Green Supply Chain Decisions Considering Consumers’ Low-Carbon Awareness under Different Government Subsidies," Sustainability, MDPI, vol. 12(6), pages 1-12, March.
    18. Zhaofu Hong & Hao Wang & Yeming Gong, 2019. "Green product design considering functional-product reference," Post-Print hal-02312293, HAL.
    19. Xianliang Shi & Genzhu Li & Ciwei Dong & Yefei Yang, 2020. "Value Co-Creation Behavior in Green Supply Chains: An Empirical Study," Energies, MDPI, vol. 13(15), pages 1-26, July.
    20. Ji, Jingna & Li, Tao & Yang, Lei, 2023. "Pricing and carbon reduction strategies for vertically differentiated firms under Cap-and-Trade regulation," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 171(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:11:y:2019:i:13:p:3508-:d:243127. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.