Coordinating double-level sustainability effort in a sustainable supply chain under cap-and-trade regulation

In recent decades, due to the growing sustainable development concerns, the supply chains members, such as manufacturers and retailers, are interested in investing in environmental sustainability and social sustainability issues to gain more market share in today's competitive business environment. This paper contributes to the literature by proposing double-level sustainability effort in a sustainable supply chain consists of one manufacturer and one retailer under the cap-and-trade regulation. The manufacturer invests in the technology to reduce carbon emissions and improve the quality of products. On the other hand, the retailer invests in green effort while decides on its periodic review order-up-to-level replenishment policy. Under such a case, both the manufacturer's and the retailer's decisions not only affect their individual profitability but also impact on the whole supply chain performance and sustainability level. Using game-theoretic mathematical modeling, the double-level sustainability effort is first analyzed under the decentralized and centralized structures. Then, a compensation-based wholesale price contract is introduced to coordinate the sustainable supply chain under the cap-and-trade regulation. The surplus profit obtained under the coordination plan is shared between the manufacturer and retailer depending on their bargaining power. The data generated based on the assumptions of a pharmaceutical case study is applied to indicate the applicability of developed models. The results illustrate that the developed coordinated system simultaneously enhances the whole sustainable supply chain performance from the social, environmental, and economic points of view.