Manufacturer-retailer coordination in a closed-loop supply chain system with emission reduction, government incentives, and energy-saving level

Abstract

The emerging concerns towards sustainability have encouraged industrial stakeholders to get involved and cooperate to achieve a sustainable supply chain. This paper develops a coordination mechanism for a closed-loop supply chain, operating under several policies to control the carbon emission, namely a carbon tax regulation, government incentives policy, green technology investment, and energy-saving investment. The carbon tax regulation is implemented to lessen the emissions from the manufacturer’s activities. Whereas, to encourage the manufacturer to cut down the emission as well as to increase the product return and energy savings, the government provides incentives based on a target level. The system operates under a variable market demand which is affected by the retailer’s selling price, green technology, and energy-saving levels. The proposed problem is formulated under two different scenarios, which are the centralized model and the decentralized model. To improve the supply chain coordination, we also propose two different contracts, namely the green technology revenue-investment-sharing contract (GRIS contract) and the energy saving revenue-investment-sharing contract (ERIS contract). The system inflicted with two types of inspection error in classifying the returned products. The models are formulated mathematically and optimized using a proposed algorithm. The result shows that the centralized model performs better in maximizing the total profit compared to the decentralized model. The results also imply that the government incentives toward product returns, green technology, and energy-saving actually affect the optimal decision of the supply chain system. In addition, the proposed contracts are proven to provide win–win solutions and improve supply chain coordination.

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