Implementing Environmental and Social Responsibility Programs in Supply Networks through Multi-Unit Bilateral Negotiation

34 Pages Posted: 14 Jan 2019

See all articles by Qi Feng

Qi Feng

Purdue University - Krannert School of Management

Chengzhang Li

Purdue University - Krannert School of Management

Mengshi Lu

Purdue University - Krannert School of Management

J. George Shanthikumar

Purdue University - Krannert School of Management

Date Written: January 3, 2019

Abstract

Involving suppliers deep in the supply chain is critical for the success of environmental and social responsibility (ESR) initiatives. Administering ESR programs throughout a complex supply network, however, is challenging. In this paper, we apply a bilateral bargaining framework to analyze to what extent an ESR initiator should directly engage higher-tier suppliers, as opposed to delegating the assurance of ESR compliance to its first-tier suppliers. Our bargaining framework not only generalizes the conventional Shapley value approach by allowing the flexibility of modeling imbalanced power distribution among the firms, but also provides an explicit way of implementing the resulting gain sharing among the firms through negotiated contract terms. We show that the eventual structure of negotiation relationships can be derived by finding a shortest path tree in the supply network with the arc cost defined as a monotone function of the negotiating parties' relative bargaining power. These developments allow us to analyze ESR implementation in generally extended supply networks. We find that the ESR initiator tends to delegate ESR compliance negotiation to a supplier that is strong in negotiations with higher-tier suppliers. When the supply network is complex (i.e., wide and deep), directly engaging all suppliers for ESR compliance can lead to a larger gain by the initiator than fully delegating the negotiations with higher-tier suppliers to the first-tier ones. However, as the network gets increasingly complex, the ESR initiator tends to directly engage with a reduced percentage of higher-tier suppliers.

Keywords: Environmental and Social Responsibility, Supply Network, Multi-Unit Bilateral Bargaining, Nash-Nash Solution, Shortest Path Tree

Suggested Citation

Feng, Qi and Li, Chengzhang and Lu, Mengshi and Shanthikumar, J. George, Implementing Environmental and Social Responsibility Programs in Supply Networks through Multi-Unit Bilateral Negotiation (January 3, 2019). Available at SSRN: https://ssrn.com/abstract=3309518 or http://dx.doi.org/10.2139/ssrn.3309518

Qi Feng

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Chengzhang Li (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Mengshi Lu

Purdue University - Krannert School of Management ( email )

403 W State Street
West Lafayette, IN 47907
United States

J. George Shanthikumar

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

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