Analyzing a manufacturer-retailer sustainable supply chain under cap-and-trade policy and revenue sharing contract

Due to growing public awareness about environment-friendly (green) products, green improvement has become an important factor in supply chain management. This paper deals with a two-echelon sustainable supply chain where both the manufacturer and the retailer are environmentally conscious. Market demand is assumed to be dependent on the selling price and green activities of both the channel members, while the carbon emissions are affected by the greening level of the product. In a make-to-order setting, this paper develops four models, viz. centralized, decentralized, retailer-led revenue sharing and bargaining revenue sharing under the cap-and-trade policy, and compares the optimal outcomes analytically. Numerical examples are taken to investigate the influence of some key model-parameters on optimal decisions. Our results demonstrate that besides improving the greening level of the product, the retailer-led revenue sharing can achieve a win-win situation for both the manufacturer and the retailer. Although the bargaining revenue sharing results in lower profit for the retailer, through promoting the greening level of the product effectively and diminishing the selling price it appears favorable for consumers, the manufacturer and the entire supply chain. Sensitivity analysis illustrates that a higher value of carbon trading cost encourages the manufacturer in improving the greening level and so, reducing the carbon emissions.