The Optimal Order and Production Strategies of Supply Chain with a Stochastic Demand under Carbon Cap-and-Trade Mechanism

Abstract

In the context of the global low-carbon economy, the carbon cap-and-trade mechanism (CCATM) plays an important impact on the production and trade of enterprises and is widely implemented by most governments to reduce carbon emissions. In this paper, we investigate a two-stage supply chain game model with a stochastic demand under the CCATM, in which the manufacturer has two production modes and the retailer has two order opportunities, and both of them make green effort. The results show that the optimal decision is irrelevant to carbon cap while is relevant to carbon emissions per unit product. The profits of both the manufacturer and the retailer increase under the CCATM. Furthermore, we explore the optimal decisions under the buyback contract and the payment contract provided by the manufacturer to the retailer. We find that the transfer payment can’t improve the profit while the buyback contract can do. We further extend our model by investigating the scenario with the risk-averse channel members, and find that the first optimal order quantity of the retailer would reduce due to risk aversion, while the manufacturer would invest more green effort and the manufacturer would be more likely to cooperate with a lower risk-averse retailer.

Keywords

Cap-and-trade / two order opportunities / two production modes / green effort

References

[1] Bai Q, Xu J, Zhang Y. Emission reduction decision and coordination of a make-to-order supply chain with two products under cap-and-trade regulation. Computers & Industrial Engineering, 2018, 119: 131-145. May

[2] Benjaafar S, Li YZ, Daskin M. Carbon footprint and the management of supply chains: Insights from simple models. IEEE Transactions on Automation Science and Engineering, 2013, 10(1): 99-116.

[3] Cao EB, Yu M. Trade credit financing and coordination for an emission-dependent supply chain. Computers & Industrial Engineering, 2018, 119: 50-62. May

[4] Chen KB, Xiao TJ, Wang SB, Lei D. Inventory strategies for perishable products with two-period shelf-life and lost sales. International Journal of Production Research, 2020, 59(17): 5301-5320.

[5] Chen ZM, Yuan KW, Zhou SR. Supply chain coordination with trade credit under the CVaR criterion. International Journal of Production Research, 2018, 57(11): 3538-3553.

[6] Dai R, Zhang J, Tang W. Cartelization or cost-sharing? Comparison of cooperation modes in a green supply chain. Journal of Cleaner Production, 2017, 156: 159-173. July

[7] Dong C, Shen B, Chow PS, Yang L, Ng CT. Sustainability investment under cap-and-trade regulation. Annals of Operations Research, 2016, 240(2): 509-531.

[8] Donhue KL. Efficient supply contracts for fashion goods with forecast updating and two production modes. Management Science, 2000, 46(11): 1397-1411.

[9] European Union (2009). EU Directive 2009/29/EC. Available at http://bit.ly/2Qpbmz5.

[10] Fan Y, Feng Y, Shou Y. A risk-averse and buyer-led supply chain under option contract: CVaR minimization and channel coordination. International Journal of Production Economics, 2020, 219: 66-81. January

[11] Ghosh D, Shah J. Supply chain analysis under green sensitive consumer demand and cost sharing contract. International Journal of Production Economics, 2015, 164: 319-329.

[12] Gurnani H, Tang CS. Note: Optimal order decisions with uncertain cost and demand forecast updating. Management Science, 1999, 45(10): 1456-1462.

[13] He D, Chen X, Huang Q. Influences of carbon emission abatement on firms’ production policy based on Newsboy model. Journal of Industrial and Management Optimization, 2016, 13(1): 251-265.

[14] Hua GW, Cheng TCE, Wang SY. Managing carbon footprints in inventory management. International Journal of Production Economics, 2011, 132(2): 178-185.

[15] Huang S, Wen Z, Chen J, Cui N. Optimal technology investment under emission trading policy. Journal of Systems Science and Systems Engineering, 2020, 29(2): 143-162.

[16] Huang XM, Tarkan TL, Toktay B. Carbon leakage: The impact of asymmetric regulation on carbonEmitting production. Production and Operations Management, 2020, 30(6): 1886-1903.

[17] Khouja M, Zhou J. An off-price retailer with two ordering opportunities and demand updating. International Journal of Production Economics, 2017, 188: 128-138. C

[18] Lau AHL, Lau HS. Decision models for single-period products with two order opportunities. International Journal of Production Economics, 1998, 55(1): 57-70.

[19] Lau HS, Lau HL. Reordering strategies for a newsboy-type product. European Journal of Operational Research, 1997, 103(3): 557-572.

[20] Liu Z, Anderson TD, Cruz JM. Consumer environmental awareness and competition in two-stage supply chains. European Journal of Operational Research, 2012, 218(3): 602-613.

[21] Lodree EJ. Advanced supply chain planning with mixtures of backorders, lost sales, and lost contract. European Journal of Operational Research, 2007, 181(1): 168-183.

[22] Lodree EJ, Kim Y, Jang W. Time and quantity dependent waiting costs in a newsvendor problem with backlogged shortages. Mathematical & Computer Modelling, 2008, 47(1–2): 60-71.

[23] Navarro KS, Chedid JA, Florez WF, Mateus HOL, Barrón EC, Sana SS. A collaborative EPQ inventory model for a three-echelon supply chain with multiple products considering the effect of marketing effort on demand. Journal of Industrial and Management Optimization, 2020, 16(4): 1613-1633.

[24] Parlar M, Weng ZK. Designing a firm’s coordinated manufacturing and supply decisions with short product life cycles. Management Science, 1997, 43(10): 1329-1344.

[25] Qian X, Chan F, Zhang J, Yin M, Zhang Q. Channel coordination of a two echelon sustainable supply chain with a fair-minded retailer under cap-and-trade regulation. Journal of Cleaner Production, 2020, 224(3): 1-21.

[26] Rockafellar RT, Uryasev S. Conditional value-at-risk for general loss distributions. Journal of Banking & Finance, 2002, 26(7): 1443-1471.

[27] Rockafellar RT, Uryasev S. Optimization of conditional value-at-risk. Journal of Risk, 2000, 2(3): 21-42.

[28] Seyyed M, Hosseini M, Samira E, Abbas J. Sustainable supply chain coordination under competition and green effort scheme. Journal of the Operational Research Society, 2021, 72(2): 304-319.

[29] Sinayi M, Rasti-Barzoki M. A game theoretic approach for pricing, greening, and social welfare policies in a supply chain with government intervention. Journal of Cleaner Product ion, 2018, 196: 1443-1458. PT.863-1704

[30] Song J, Leng M. Analysis of the single-period problem under carbon emissions policies. Handbook of Newsvendor Problems, 2012, New York: Springer

[31] Swami S, Shah J. Channel coordination in green supply chain management. Journal of the Operational Research Society, 2012, 64: 336-351. March

[32] Tietenberg TH. Emission Trading: Principles and Practice, 2010, Washington, DC, USA: Routledge.

[33] Wang S, Choi S. Pareto-efficient coordination of the contract-based MTO supply chain under flexible cap-and-trade emission constraint. Journal of Cleaner Production, 2019, 250: 119-571.

[34] Weng ZK. Coordinating order quantities between the manufacturer and the buyer: A generalized newsvendor model. European Journal of Operational Research, 2004, 156(1): 148-161.

[35] Xu L, Wang CX, Zhao JJ. Decision and coordination in the dual-channel supply chain considering cap-and-trade regulation. Journal of Cleaner Production, 2018, 197: 551-561. Part 1

[36] Xu X, He P, Xu H, Zhang Q. Supply chain coordination with green technology under cap-and-trade regulation. International Journal of Production Economics, 2016, 183: 433-442. Part B

[37] Xu X, Zhang W, He P, Xu X. Production and pricing problems in make-to-order supply chain with cap-and-trade regulation. Omega, 2015, 11: 389-402 Part B

[38] Yang L, Wang GY, Chai YN. Manufacturer’s Channel Selection Considering Carbon Emission Reduction and Remanufacturing. Journal of Systems Science and Systems Engineering, 2018, 27(5): 497-518.

[39] Yu YY, Jin LX. The effect of governmental policies of carbon taxes and energy-saving subsidies on enterprise decisions in a two-echelon supply chain. Journal of Cleaner Production, 2018, 181: 675-691.

[40] Zhang B, Xu L. Multi-item production planning with carbon cap and trade mechanism. International Journal of Production Economics, 2013, 144(1): 118-127.

[41] Zhou Y, Li DH. Coordinating order quantity decisions in the supply chain contract under random demand. Applied Mathematical Modeling, 2007, 31(6): 1029-1038.

[42] Zhu B, Wen B, Ji S, Qiu R. Coordinating a dual-channel supply chain with conditional value-at-risk under uncertainties of yield and demand. Computers & Industrial Engineering, 2020, 139: 106181.