Optimal Green Input Level for a Capital-Constrained Supply Chain Considering Disruption Risk

Abstract

Under increasingly stringent environmental regulations, inadequate green input levels from manufacturers may lead to substandard emissions and production shutdown, which further results in the disruption risk of the supply chain. This work investigates a green supply chain (GSC) consisting of one environmentally regulated manufacturer and one capital-constrained retailer who faces stochastic market demand. The manufacturer needs to make decisions on the green input level, which is related to the investment cost as well as supply disruption risk. The retailer has to determine product order quantities and financing decisions. We derive the operational equilibriums for the GSC system under three scenarios: no financing, trade credit financing (TCF), and bank credit financing (BCF), and recommend the optimal financial selection for the retailer via the comparison of three financial modes. The analytical and numerical results reveal that the manufacturer should improve the green input level within the financial capability to enhance the sustainable operation level of the supply chain. In addition, we find that the capital-constrained retailer will choose financing, since either BCF or TCF will result in a higher profit than no financing. Moreover, we obtain the threshold of green input level, with which we can decide whether to choose TCF or BCF under the given corresponding parameters.