Coordinating a Socially Responsible Supply Chain with Random Yield under CSR and Price Dependent Stochastic Demand

Document Type: Review Paper


Department of Mathematics, Jadavpur University, Kolkata, India



Corporate social responsibility plays an important role in associating customers with socially responsible firms. Faithful consumers are willing to give extra money for commodities or services that incentive the firms to take corporate social responsibility (CSR). This article studies the coordination issue in a two-stage supply chain which is composed of a manufacturer and a retailer who sells a short shelf-life product in a single period. The manufacturer exhibits CSR and simultaneously determines its CSR investment and production quantity, as his production process is subject to random production yield. On the other hand, the retailer decides the selling price and order quantity simultaneously while facing price and CSR sensitive stochastic demand. We construct an agreement between the retailer and the manufacturer which comprises a revenue-sharing and a cost-sharing contract. We show that the supply chain can perfectly coordinate under this composite contract and allow arbitrary allocation of total channel profit to ensure that both the retailer and the manufacturer are benefited. We further analyze the impact of randomness in production as well as the effect of CSR investment on the performance of the entire supply chain. A numerical example is provided to explain the developed model and gain more insights.


Amaeshi, K. M., Osuji, O. K., and Nnodim, P. (2008). Corporate social responsibility in supply chains of global brands: A boundaryless responsibility? clarifications, exceptions and implications. ,Journal of Business ethics, Vol. 81(1), pp.223–234.

Bernstein, F. and Federgruen, A. (2005). Decentralized supply chains with competing retailers under demand uncertainty. Management Science, Vol. 51(1), pp.18–29.

Boyd, D. E., Spekman, R. E., Kamauff, J. W., and Werhane, P. (2007). Corporate social responsibility in global supply chains: a procedural justice perspective. ,Long Range Planning, Vol. 40(3), pp.341–356.

Bulinskaya, E. V. (1964). Some results concerning optimum inventory policies ,Theory of Probability & Its Applications, Vol. 9(3), pp.389–403.

Cachon, G. P. (2003). Supply chain coordination with contracts ,Handbooks in Operations Research and Management Science, Vol. 11, pp.227–339.

Cachon, G. P. and Lariviere, M. A. (2005). Supply chain coordination with revenue-sharing contracts: strengths and limitations. ,Management Science, Vol. 51(1), pp.30–44.

Carter, C. R. and Jennings, M. M. (2002). Social responsibility and supply chain relationships. Transportation Research Part E: Logistics and Transportation Review, 38(1), pp. 37–52.

Cramer, J. (2008). Organising corporate social responsibility in international product chains. ,Journal of Cleaner Production, Vol. 16(3), pp.395–400.

Ding, D. and Chen, J. (2008). Coordinating a three level supply chain with flexible return policies.Omega, Vol. 36(5), pp.865–876.

Fakhrzad, M. B., Pourfereidouni, H. and Pourfereidouni, M.(2018). Dual-channel Supply Chain  Synchronization with Deterministic and Stochastic Demand under Cost-sharing Contract.  International Journal of Supply and Operations Management, Vol. 5(1), pp.28-42.

Giannoccaro, I. and Pontrandolfo, P. (2009). Negotiation of the revenue sharing contract: An agentbased systems approach.  International Journal of Production Economics, Vol. 122(2), pp.558–566.

Gimenez, C. and Tachizawa, E. M. (2012). Extending sustainability to suppliers: a systematic literature review. Supply Chain Management: An International Journal, Vol. 17(5), pp.531–543.

Goering, G. E. (2012). Corporate social responsibility and marketing channel coordination. ,Research in Economics, Vol. 66(2), pp.142–148.

He, Y. and Zhang, J. (2008). Random yield risk sharing in a two-level supply chain. International Journal of Production Economics, Vol. 112(2), pp.769–781.

He, Y. and Zhang, J. (2010). Random yield supply chain with a yield dependent secondary market.  European Journal of Operational Research, Vol. 206(1), pp.221–230.

Hsueh, C.-F. (2014). Improving corporate social responsibility in a supply chain through a new revenue sharing contract. International Journal of Production Economics, Vol. 151, pp.214–222.

Hsueh, C.-F. and Chang, M.-S. (2008). Equilibrium analysis and corporate social responsibility for supply chain integration. European Journal of Operational Research, Vol. 190(1), pp.116–129.

Jeuland, A. P. and Shugan, S. M. (1983). Managing channel profits, Marketing Science, Vol. 2(3), pp.239–272.

Kazaz, B. (2004). Production planning under yield and demand uncertainty with yield-dependent cost and price. Manufacturing & Service Operations Management, Vol. 6(3), pp.209–224.

Lee, H. and Whang, S. (2002). The impact of the secondary market on the supply chain ,Management Science, Vol. 48(6), pp.719–731.

Mandal, P. and Giri, B.C. (2019)‘A two-warehouse integrated inventory model with imperfect production process under stock-dependent demand and quantity discount offer’, International Journal of Systems Science: Operations & Logistics, Vol. 6(1), pp.15–26.

Modak, N., Panda, S., Mishra, R., and Sana, S. (2016). A three-layer supply chain coordination in socially responsible distribution system. T´ekhne, Vol. 14(1), pp.75–87.

Nezhad, M. S. F., Rasay, H. and Mehrjerdi, Y. Z.(2015). Modeling and Numerical Analysis of Revenue Sharing Contract Based on the Stackelberge Game Theory. International Journal of Supply and Operations Management, Vol. 1(4), pp.439-465.

Ni, D. and Li, K. W. (2012). A game-theoretic analysis of social responsibility conduct in two-echelon supply chains. International Journal of Production Economics, Vol. 138( 2), pp.303–313.

Ni, D., Li, K. W., and Tang, X. (2010). Social responsibility allocation in two-echelon supply chains: Insights from wholesale price contracts. European Journal of Operational Research, Vol. 207( 3), pp.1269– 1279.

Panda, S. (2014). Coordination of a socially responsible supply chain using revenue sharing contract. Transportation Research Part E: Logistics and Transportation Review, Vol. 67, pp.92–104.

Panda, S., Modak, N. M., and Ca´rdenas-Barr´on, L. E. (2017). Coordinating a socially responsible closed-loop supply chain with product recycling. International Journal of Production Economics, Vol. 188, pp.11–21.

Pasternack, B. A. (1985). Optimal pricing and return policies for perishable commodities. Marketing Science, Vol. 4(2), pp.166–176.

Petruzzi, N. C. and Dada, M. (1999). Pricing and the newsvendor problem: A review with extensions. Operations Research, Vol. 47(2), pp.183–194.

Saha, S. and Chakrabarti, T.(2018). Two-echelon Supply Chain Model for Deteriorating Items in an Imperfect Production System with Advertisement and Stock Dependent Demand under Trade Credit. International Journal of Supply and Operations Management, Vol. 5(3), pp.207-217.

Silver, E. A. (1976). A simple method of determining order quantities in joint replenishments under deterministic demand. Management Science, Vol. 22(12), pp.1351–1361.

Spengler, J. J. (1950). Vertical integration and antitrust policy. Journal of Political Economy, Vol. 58(4), pp.347–352.

Tsay, A. A. (1999). The quantity flexibility contract and supplier-customer incentives. Management Science, Vol. 45(10), pp.1339–1358.

Tsay, A. A., Nahmias, S., and Agrawal, N. (1999). Modeling supply chain contracts: A review. In Quantitative Models for Supply Chain Management, pp. 299–336. Springer.

Xiong, H., Chen, B., and Xie, J. (2011). A composite contract based on buy back and quantity flexibility contracts. European Journal of Operational Research, Vol. 210(3), pp.559–567.

Xu, H. (2010). Managing production and procurement through option contracts in supply chains with random yield. International Journal of Production Economics, Vol. 126(2), pp.306–313.

Yao, L., Chen, Y. F., and Yan, H. (2006). The newsvendor problem with pricing: extensions. International Journal of Management Science and Engineering Management, Vol. 1(1), pp.3–16.

Zamanian, R. M., Sadeh, E., Sabegh, Z. A. and Rasi, R. E.(2020). A Multi-Objective Optimization Model for the Resilience and Sustainable Supply Chain: A Case Study. International Journal of Supply and Operations Management, Vol. 7(1), pp.51-75.

Zhao, X. and Yin, R. (2018). Coordination of a socially responsible two-stage supply chain under price-dependent random demand. 4OR, Vol. 16( )4, pp.379–400.