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

Management Science, Forthcoming

63 Pages Posted: 14 Jan 2019 Last revised: 5 Feb 2021

See all articles by Qi Feng

Qi Feng

Purdue University - Krannert School of Management

Chengzhang Li

Antai College of Economics and Management, Shanghai Jiao Tong Univeristy

Mengshi Lu

Purdue University - Krannert School of Management

J. George Shanthikumar

Purdue University - Krannert School of Management

Date Written: January 6, 2021

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 multi-unit bilateral bargaining framework to coordinate ESR investments in a general supply network and analyze to what extent an ESR initiator should directly engage the higher-tier suppliers, as opposed to delegating that responsibility to the 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 ESR negotiation relationships can be derived by finding a shortest path tree in the supply network with the arc cost defined as the logarithm 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 negotiations 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 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 a reduced percentage of higher-tier suppliers. We further extend our analysis to situations where the ESR relationships are sequentially formed in a decentralized manner, where the benefit of ESR depends on the collective choice of the firms' investment levels, where multiple ESR programs are implemented in the network, and where ESR investments depend on the negotiation relationships.

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 6, 2021). Management Science, Forthcoming, 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)

Antai College of Economics and Management, Shanghai Jiao Tong Univeristy ( email )

1954 Huashan Road
Shanghai, Shanghai 200030
China

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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