Sustainability and production planning decisions towards a sustainable supply chain with customer green awareness

Abstract

Aggregating global warming and its disastrous effects worldwide have raised grave concerns about carbon emission. As a main emission source, the manufacturing industry is in dire need of proactive methods for emission mitigation. Growing customer green awareness elevates the market space for the sustainable product, providing a new profit source for the company. Moreover, empirical studies show considerable differences in sustainable achievements among the supply chain entities. Downstream manufacturers are much more active than their suppliers, who yet emit the most. Hence, all supply chain entities should cooperate and unify their disparate incentives. Nevertheless, most previous research works treated carbon emission as a passive constraint. The proposed operational adjustments for sustainability are inadequate for drastic emission reduction. Although some studies have incorporated proactive sustainable efforts, most of them focused only on the downstream manufacturers, underestimating the ponderance of suppliers. To this end, this dissertation studies the production planning and sustainability decision optimisation in the supply chain with constant and dynamic demands, considering the customer green awareness and various carbon regulations. This dissertation firstly investigates the joint batch production quantity and sustainability decisions for the individual firm in an EOQ-based model with carbon policies. Subsequently, a two-stage EOQ-based supply chain is studied. The profit, batch production quantity and the sustainability in the centralised chain are proved to outperform the decentralised chain. To validate the supplier’s apathy towards sustainability and enhance the chain’s performance, a manufacturer-supplier chain model with low-carbon investment by both parties is proposed. Critical analysis and comparisons of centralised and decentralised solutions reveal that the small profit margin results in the supplier’s apathy. A cost-sharing contract is designed to bring about Pareto improvement for both profitability and sustainability. Moreover, a cost-sharing and green bonus bundled contract proves the ability to achieve full coordination. Then, the sustainability decision of the supplier in an option-based supply chain with customer green awareness is studied. In the decentralised model, the decisions of both members are disjunct, resulting in poor profit and output quantity compared with the situation without low-carbon investment. A low-carbon investment cost-sharing contract is devised to link their decisions, enhancing the quantity output and the product sustainability. Finally, a stochastic multi-period production planning and sustainability decision model is proposed. It is shown that low-carbon investment is soundness and enhances the long-term profit under market volatilities. Numerical studies with real world industrial data are conducted with sensitivity tests of important parameters. Managerial insights are summarised for the manufacturing industry. In summary, this dissertation analytically investigates the decisions and performances of a supply chain in constant and dynamic markets with customer green awareness and regulations. It reveals the root problem of the supplier’s apathy towards sustainability and proves the imperativeness of coordination for sustainability. It also demonstrates the role of the proposed cost-sharing contract in enhancing the profitability and sustainability in various scenarios. Overall, the research result provides theoretical guidance and managerial insights for supply chains and individual companies to achieve better sustainable and profitable performance.