Transportation Research Part E 115 (2018) 213–226

Contents lists available at ScienceDirect

Transportation Research Part E

journal homepage: www.elsevier.com/locate/tre

Supply chain channel coordination with triple bottom line

T
approach
⁎
Indranil Biswas, Alok Raj , Samir K. Srivastava
Operations Management Area, Indian Institute of Management Lucknow, Off Sitapur Road, Prabandh Nagar, Lucknow 226013, India

A R T IC LE I N F O ABS TRA CT

Keywords: In this paper, we explore coordination of a sustainable risk-neutral supply chain that faces
Sustainable supply chain management greening effort dependent demand. We propose a framework for exclusive distribution of sus-
Triple bottom line tainability responsibilities in a decentralised setting. We classify decentralised supply chain ac-
Coordination cording to distribution of responsibilities for greening and social efforts. Our study demonstrates
Game theory
that greening and social responsiveness indices simultaneously influence all optimal parameters
Decentralised supply chain
of a supply chain. We analyse generalised wholesale price and linear two-part tariff contracts for
dyadic supply chains with triple bottom line objective. We demonstrate that a decentralised
supply chain can be coordinated when the supplier is socially responsible.

1. Introduction

Mounting regulatory pressure, rise in demand for eco-friendly products, and similar requirements of different stakeholder groups
have led to the adoption of greening and socially responsible practices by supply chains across the world. Firms spread over diverse
sectors such as, retail (Wal-Mart1, Tesco, Sainsbury's, Marks and Spencer), technology (Apple2, Dell), jewellery (Tiffany and Com-
pany3), outdoor clothing & gear (Adidas4, Nike5, Patagonia), garden centres (Wyevale), luxury watches (Chopard6), automobiles
(Maruti Suzuki India Limited, Hero Honda), and food (McDonalds), are working simultaneously towards becoming green and socially
responsible organisations. Wal-Mart has planned to rope in up to 70% of its Chinese suppliers to participate in an energy efficiency
program before the end of 20177. In the luxury industry sector, Kering luxury group is focusing on sustainability to develop it as a

⁎
Corresponding author.
E-mail addresses: indranil@iiml.ac.in (I. Biswas), fpm15002@iiml.ac.in (A. Raj), samir@iiml.ac.in (S.K. Srivastava).
1
Journal report (2014, April 8). “Wal-Mart’s Green Initiative: Status Report”. Wall Street Journal. Retrieved from http://www.wsj.com/articles/
SB10001424052702304432604579473453226974252, accessed on 16/09/2016.
2
Journal report (2015, March 30). “Lisa Jackson on Apple’s Green Initiatives”. Wall Street Journal. Retrieved from: http://www.wsj.com/articles/lisa-jackson-on-
apples-green-initiatives-1427770864, accessed on 17/09/2016.
3
Thomas, D. (2015, December 1). “The Luxury Sector Now Focusing on a Sustainable Future”. The New York Times. Retrieved from http://www.nytimes.com/2015/
12/02/fashion/luxury-brands-focusing-on-a-sustainable-future.html, accessed on 14/09/2016.
4
Jervell, E.E. (2015, September 24). “Adidas Moves to Address Environmental Worries”. Wall Street Journal. Retrieved from: http://www.wsj.com/articles/adidas-
moves-to-address-environmental-worries-1443075134, accessed on: 16/09/2016.
5
Ibid.
6
Thomas, D. (2015, December 1). “The Luxury Sector Now Focusing on a Sustainable Future”. The New York Times. Retrieved from http://www.nytimes.com/2015/
12/02/fashion/luxury-brands-focusing-on-a-sustainable-future.html, accessed on 14/09/2016.
7
Clancy, H. (2014, August 29). “Walmart Extends Energy Efficiency Focus To Chinese Suppliers”. Forbes. Retrieved from: http://www.forbes.com/sites/
heatherclancy/2014/08/29/walmart-extends-energy-efficiency-focus-to-chinese-suppliers/, accessed on 07/09/2016.

https://doi.org/10.1016/j.tre.2018.05.007
Received 18 December 2017; Received in revised form 14 May 2018; Accepted 20 May 2018
Available online 23 May 2018
1366-5545/ © 2018 Elsevier Ltd. All rights reserved.
I. Biswas et al. Transportation Research Part E 115 (2018) 213–226

core competence8. Apple Inc. is sharing the initial cost with its supplier Foxconn Technology Group to improve labour conditions at
Chinese factories that assemble iPhones and iPads9. A recent survey conducted by MIT Sloan Management Review and Boston Con-
sulting Group reveals that majority of business executives recognise that both social and environmental aspects are “significant” or
“very significant”, but only a minority is convinced that they are contributing enough to promote the cause10. Lack of a coherent
coordination strategy has proved to be a major hindrance towards implementation of triple bottom line (TBL) objectives11.
Elkington (1998) proposed the concept of TBL that consists of three separate bottom lines namely, profit, people, and planet
accounts. In spite of TBL being an accounting framework, managers face the problem of measuring TBL index by a common unit
(Hall, 2011) and subsequently incorporating these concepts into their business practices (Hsueh, 2014). Varying business focuses as
well as regulatory norms of various firms across the same supply chain worsen the problem of objective alignment (Brandenburg
et al., 2014; Wilhelm et al., 2016). Apart from focusing on corporate social responsibility (CSR) related activities, Apple Inc. has
invested in wind energy projects in China to implement green manufacturing processes of the immediate suppliers such as, Foxconn,
Lens, Catcher and Solvay12. Wal-Mart has partnered with Patagonia for developing eco-friendly products13 to turn its business ‘Green’
and it is driving most of the CSR related activities on its own14. Mattel has recalled over 20 million Chinese-made children’s toys after
detection of the use of excessive lead paint beyond permissible levels and has paid US$2.3 million as fine for violating lead paint ban
in the US15. Implementation of TBL practices across a supply chain often faces the hurdle of misalignment of business objectives
across different firms. As a result, supply chain faces the problem of discoordination and subsequently, loss of profit (Seuring, 2013).
Connecting coordination mechanisms with environmental and sustainability issues has remained an unexplored area of sus-
tainable supply chain (Seuring, 2013). Specifically, analysis of general supply contracts with the balanced incorporation of all the
elements of TBL has remained a challenge (Brandenburg et al., 2014). Designing generalised contracts for supply chains with TBL
approach can eliminate the problem of discoordination among different agents of a supply chain. Apart from this gap in extant
literature, previous business examples raise the following additional questions: Since objectives vary across firms of a supply chain,
how can a supplier firm ensure channel coordination? In a supply chain, if one agent is responsible for both greening and CSR efforts,
and the other agent is a profit maximiser, how can the system be designed to achieve channel coordination? Similar question can arise
also when the responsibility of greening and CSR efforts are distributed among supply chain agents exclusively. The specific research
questions we aim to explore are as follows:

1. How can all the dimensions of TBL: (i) economic, (ii) environmental, and (iii) social, be integrated into one unified framework of a
supply chain?
2. How do environmental and social effort impact supply chain performance?
3. In a sustainable supply chain, how should responsibilities of sustainability (environmental and social responsibilities) be dis-
tributed so that it also yields the best overall performance for the supply chain?
4. Under what circumstances does a supply chain with triple bottom line objective coordinate?

In this paper, we seek to answer the aforementioned questions by investigating a dyadic supply chain that puts efforts toward
greening as well as CSR activities, along with profit motive while facing deterministic demand. Specifically, we examine such supply
chains under two scenarios of decentralisation: (i) one supply chain agent acts as only profit maximizermaximiser, and the other
agent acts as a TBL maximiser and thus incurs the cost for both greening and CSR activities; and, (ii) one agent focuses only on
greening and the other agent is involved only in CSR efforts. Through this model, we try to understand how different indices of TBL
influence the optimal parameters of various stakeholders in a supply chain, with a change in the objective of constituent members. In
the context of channel coordination, we discuss two contract types namely, wholesale price (WP) and linear two-part tariff (LTT),
from the supplier’s perspective. Using Stackelberg game, we develop generalised optimal expressions for retail prices, order quantities
and contract parameters for the aforementioned scenarios of decentralisation. We propose channel coordinating LTT contract for all
the scenarios. We further show that the optimal retail prices, order quantities and profit distributions for pure profit, green and
socially responsible supply chains can be derived as special cases of our proposed model. Through our proposed analytical model, we
integrate all the dimensions of the TBL construct with extant literature on supply chain coordination. We also illustrate by a nu-
merical example the distribution of objective functions and retail prices for a dyadic supply chain with TBL approach.

8
Thomas, D. (2015, December 1). “The Luxury Sector Now Focusing on a Sustainable Future”. The New York Times. Retrieved from http://www.nytimes.com/
2015/12/02/fashion/luxury-brands-focusing-on-a-sustainable-future.html, accessed on 14/09/2016.
9
Ruwitch, J. (2012, May 10). Apple, supplier Foxconn to share costs on improving factories. Reuters. Retrieved from http://www.reuters.com/article/us-foxconn-
idUSBRE84907J20120510, accessed on 15/09/2016.
10
The Economist. (2014, August 30). A new green wave. The Economist. Retrieved from http://www.economist.com/news/business/21614152-few-pioneering-
businesses-are-developing-sustainability-policies-worthy-name-new, accessed on 09/09/2016.
11
Ibid.
12
Pham, S. (2016, December 09).Why Apple is investing in wind turbines in China. CNN News Report. Retrieved from: http://money.cnn.com/2016/12/09/
technology/apple-wind-turbine-china-investment/, accessed on 11/01/2017.
13
Burke, M. (2010, June 05). Wal-Mart, Patagonia Team To Green Business. Forbes. Retrieved from: http://www.forbes.com/forbes/2010/0524/rebuilding-
sustainability-eco-friendly-mr-green-jeans.html, accessed on 11/01/2017.
14
Makower, J. (2015, November 17). Walmart sustainability at 10: An assessment. Retrieved from: https://www.greenbiz.com/article/walmart-sustainability-10-
assessment, accessed on 11/01/2017.
15
Liberty International Underwriters (2016, September 16). Product recall costs mount for businesses. Australian Financial Review. Retrieved from: http://
paidcontent.afr.com/liberty-international-underwriters/insurance/article/product-recall-costs-mount-businesses/, accessed on 11/01/2017.

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The rest of the paper is organised as follows: in Section 2 we review related literature. We describe the problem setting, different
scenarios for decentralised supply chain, and formulation of WP and LTT contract problems in Section 3. In Section 4, we discuss the
optimal price, order quantity, greening effort, profit distribution among supply chain agents and design of channel coordinating
contracts. In Section 5, we present the results of a simple numerical example to illustrate the behaviour of optimal objective functions
of different supply chain agents and optimal retail prices. Finally, we discuss managerial implications of the research and suggest
future research directions in Section 6.

2. Literature review

Integration of TBL dimensions with supply chain management is gaining increasing relevance for managerial decision making
(Brandenburg et al., 2014, Fahimnia and Jabbarzadeh, 2016). Extant literature has primarily focused on different aspects of TBL such
as, greening (Srivastava, 2007; Konur, 2017), reverse logistics (Govindan et al., 2015; Srivastava, 2008), social responsibility (Lee,
2008) and sustainability (Brandenburg and Rebs, 2015; Seuring, 2013). Brandenburg et al. (2014) and Seuring (2013) provide a
review of quantitative modelling based research for integrating TBL concepts in supply chains.
In the context of integrating supply chain coordination with one or more TBL indices, only a few studies have come out (Raj et al.,
2018). Under deterministic demand scenario, Ghosh and Shah (2012) study a green dyadic supply chain by incorporating cost of
greening and calculate optimal product greening level, retail price and profits of supply chain agents. They have also analysed cost-
sharing contract in a similar context (Ghosh and Shah, 2015). Swami and Shah (2013) have studied green supply chain with sharing
of environmental responsibility among all supply chain agents. Zhang and Liu (2013) analyse pricing decision of green supply chains
using non-cooperative game theory. Zhu and He (2017) analyse the impact of horizontal and vertical supply chain competition on
product greening as well as on pricing decisions. Xu et al. (2016) have studied revenue-sharing and linear two-part tariff contracts for
a dyadic green supply chain under carbon taxation and trade regulation. In green supply chain, channel coordination is achieved by
employing linear two-part tariff contract (Ghosh and Shah, 2012; Swami and Shah, 2013; Xu et al., 2016), and cost-sharing contract
(Ghosh and Shah, 2015; Zhu and He, 2017). However, none of the aforementioned works incorporates social responsibility dimension
and its influence on supply chain coordination.
There is limited literature on incorporation of CSR related parameter(s) in supply chain coordination literature due to the dif-
ficulty in measuring social efforts of a supply chain agent (Hall, 2011; Servaes and Tamayo, 2013). Scholars have modelled social
effort of supply chain agents through the consumer surplus that they use for CSR related activities (Ni et al., 2010; Panda, 2014;
Panda et al., 2015). Ni et al. (2010) investigate the influence of CSR effort on the wholesale price contract and do not propose any
channel coordination mechanism. Panda (2014) has discussed channel coordination of socially responsible supply chain by using
revenue-sharing contract. Panda et al. (2015) have extended the socially responsible supply chain model for a three-tier supply chain
and discussed the effect of wholesale price contract with fixed discounts. In case of socially responsible supply chain, Ma et al. (2017)
provide analysis of the wholesale price and linear two-part tariff contracts. Hsueh (2014) has incorporated CSR into the two-tier
supply chain under a stochastic demand setup and proposed a revenue sharing contract for coordinating the supply chain. The study
of coordination mechanism in the context of socially responsible supply chain remains limited (Xu et al., 2016). All the aforemen-
tioned works focus only on integrating the dimension of CSR with channel coordination and do not incorporate greening effort or its
influence.
Design of coordination strategies with one or more TBL objectives has exclusively focused on either green supply chains (Ghosh
and Shah, 2012; Ghosh and Shah, 2015; Swami and Shah, 2013) or socially responsible supply chains (Ni et al., 2010; Hsueh, 2014;
Panda, 2014; Panda et al., 2015; and Ma et al., 2017). Recent review papers also indicate that the linkage between all TBL indices and
supply chain coordination through contracts remains missing (Seuring, 2013; Brandenburg et al., 2014). They have further stressed
upon the need to develop analytical models to quantify economic contributions of vertical coordination for supply chain with TBL
construct (Brandenburg et al., 2014; Kannegiesser and Günther, 2014; Kannegiesser et al., 2014). Development of a generalised
supply chain coordination model to understand the simultaneous influence of greening and social responsibilities on supply chain
coordination mechanism remains missing in extant literature (Brandenburg et al., 2014; Zhu and He, 2017).
In this paper, we attempt to address this gap by integrating three separate strands of supply chain literature namely, greening,
social responsibility and channel coordination. We develop a full information game theoretic model for designing triple bottom line
supply chain coordination, and incorporate the effect of greening on product demand, cost of greening, and consumer surplus
attributed towards social responsibility. In this context, we analyse two types of contracts namely, wholesale price and linear two-part
tariff contracts. We compare our results with those of an integrated supply chain to comment on which contract type is beneficial for
a supplier from the perspective of channel coordination. Based on the analytically obtained results, we discuss the effect of different
objective functions of supply chain agents on optimal retail price, order quantity and profit distribution. We also validate our model
by demonstrating that the behaviour of pure profit, green, and socially responsible supply chains can be derived as special cases from
our derived optimal results.

3. Model description and analysis

We consider a sustainable dyadic supply chain consisting of one upstream firm (a supplier, index: S) and one downstream firm (a
buyer, index: B). We assume that both firms are risk-neutral in nature. The buyer faces deterministic market demand (q) of an eco-
friendly product: q = a−bp + αθ , where p is the retail price, θ is the greening effort, α is consumer sensitivity of greening effort, a is
the overall market potential and b is the own-price sensitivity of demand. The demand function is linearly decreasing in retail price

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and linearly increasing in greening effort. This assumption is an abstraction of reality, since consumers are willing to pay more for
green products nowadays. A recent survey conducted by Nielson16 across 60 countries reveals that 55% of the respondents are willing
to pay a premium for products and services which are committed towards positive greening effort. This type of greening effort
dependent demand function is widely adopted in literature (Ghosh and Shah, 2015; Moon et al., 2018; Zhu and He, 2017). The
supplier’s marginal cost of production is s and it is assumed to be constant. For the purpose of expositional simplicity, the buyer’s
marginal cost of production is assumed to be zero. These marginal costs do not reflect the efforts towards making the product green.
The cost of greening is assumed to be a non-linear increasing function of θ and is represented by C (θ) = Iθ 2 where I ( > 0)
represents greening investment parameter. This particular greening effort cost function is consistent with that of Ghosh and Shah
(2015, 2012) and Moon et al. (2018). Only one supply chain agent (S or B) who incorporates greening practices incurs this cost C (θ) .
We further assume that one of the supply chain agents is socially responsible. CSR related utility is represented through a fraction,
τ , of consumer surplus that it is willing to spend for CSR activity (Choi et al., 2018; Kopel and Brand, 2012; Panda, 2014; Panda et al.,
2015). Physical interpretation of this parameter, τ , is as follows: τ signifies the fraction of consumer surplus that a supply chain agent
(either a supplier or a buyer) is willing to spend towards CSR related activities. The range of τ is given by: 0 ⩽ τ ⩽ 1. In addition, τ
also allows us to define the objective function of a socially responsible supply chain agent as a weighted sum of its profit and CSR
related spending. Consumer surplus is defined as the difference between maximum price that the consumers are willing to pay for a
product and the actual market price that they pay for the product (Panda, 2014; Panda et al., 2015). Therefore, consumer surplus is:
pmax (a + θα )/ b
CS (q) = ∫p
min
qdp = ∫(a+θα−q)/b (a−bp + αθ) dp = q2/2b.
In a decentralised supply chain, we assume that one of the supply chain agents would take up the exclusive responsibility for either
greening effort or CSR or both. It leads to a total of four scenarios. In two scenarios, supply chain agent ‘i’ is a pure profit maximiser and
agent ‘j’ is both environmentally and socially responsible; and in the other two scenarios, supply chain agent ‘i’ is only socially re-
sponsible and agent ‘j’ is only environmentally responsible, where i ∈ (S,B ) , j ∈ (S,B ) , and i ≠ j . The weighted objective function of the
socially responsible supply chain agent i is calculated using its profit πi (·) and consumer surplus CS (q) : μi (·) = (1−τ ) πi (·) + τ CS (q) .
The generalizability of this objective function can be understood from the following: (a) τ = 1 indicates that the supply chain agent is a
perfect welfare maximiser and (b) τ = 0 represents that the supply chain agent is a perfect profit maximiser.
For the aforementioned four scenarios of decentralised supply chain, we analyse two types of contracts namely, wholesale price
(WP) and linear two-part tariff (LTT). Under the Stackelberg setting, the supplier offers to sell its product to the buyer through either
a WP or a LTT contract. The buyer observes the announced contract parameters, chooses its order quantity, and pays the supplier
according to the relevant transfer payment function T (·) . The transfer payment functions for these two contracts are as follows: (i) for
WP contract, T (·) = wq and, (ii) for LTT contract T (·) = wq + L. 1[q > 0], where, w is per unit price, L is per period fixed fee (also
known as franchise fee), 1[q > 0] is a characteristics function defined as: 1[q > 0] = [1 if q > 0 ; 0 otherwise], and q is the order quantity. All
the four scenarios along with real examples and optimization problems for the supplier are represented in Table 1.
In all four scenarios, IC indicates the buyer’s incentive compatibility constraint. This constraint signifies that a buyer will choose
its order quantity, q, in scenarios C1 and C2 and it will choose its order quantity, q, and greening level, θ, in scenarios C3 and C4 to
maximise its profit for a given value of per unit price, w, of the supplier. In all four scenarios, IR represents the buyer’s individual
rationality constraint. This constraint signifies that a buyer will participate in trade with a supplier only if its profit is at least equal to
its reservation profit level πB . It represents the exogenously decided reservation profit level of the buyer. This reservation profit level
signifies that a buyer will not trade with a supplier if this minimum profit level is not ensured for her by the supplier. The four
scenarios, combined with two different contracts, leads to a total of eight different cases for the decentralised supply chain. For the
sake of expositional simplicity, we do not consider cases of cost sharing arrangement(s) between supply chain agents for im-
plementing either greening or CSR. We summarise all the relevant notations in Table 2.
In the next section, we first present the optimal results for a centralised supply chain that serve the purpose of benchmark
solution. Subsequently, we discuss the optimal results of all the cases of the decentralised supply chain.

4. Results and discussions

In this section, we present the optimal order quantities, retail prices, greening effort, profits of supply chain agents and contract
parameters under different TBL policies of a supply chain, as enumerated by scenarios presented in Table 1. We use these results to
understand how the effect of the choice to incorporate greening or CSR activity or both influences the supplier’s optimal decisions.
We further use them to investigate the choice between greening and CSR efforts from a supplier’s perspective. We first present the
optimal parameters of a centralised supply chain with TBL approach. These results serve the purpose of benchmark solution for
subsequent analysis of the decentralised supply chain structure. Next, we discuss the analysis of WP and channel coordinating LTT
contracts. Detailed analysis of WP and LTT contracts are provided in the supplementary Appendix. We also demonstrate that our
analytical model is able to capture the dynamics of pure profit maximising supply chain, green supply chain and socially responsible
supply chain, as special cases. All the relevant calculations are presented in the supplementary Appendix, which appears as an online
companion of the paper.

16
The Sustainability Imperative [WWW Document], 2015. URL: http://www.nielsen.com/in/en/insights/reports/2015/the-sustainability-imperative.html (ac-
cessed on 9.20.17).

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Table 1
Scenarios under consideration and corresponding optimization problems.
Responsibility of Greening

Supplier Buyer

Responsibility of Supplier Scenario 1: C1 Scenario 3: C3

CSR
(i) The supplier is responsible for both greening and CSR. (i) The supplier is responsible for CSR.
(ii) The buyer is a pure profit maximiser. (ii) The buyer is responsible for greening.
The supplier’s optimisation problem is: The supplier’s optimisation problem is:

τ q2 τ q2
max μS = (1−τ ){T (·)−sq−Iθ 2} + max μS = (1−τ ){T (·)−sq} +
T (·),θ 2b T (·) 2b

s. t . IC: q = argmax πB (·) s. t . IC: (q,θ) = argmax πB (·)

q q,θ
IR: πB (·) = pq−T (·) q ⩾ πB IR: πB (·) = pq−T (·) q−Iθ 2 ⩾ πB
Example: Example:
Supplier(Greening + CSR): HULBuyer: brick-and-mortar store Supplier(CSR): FoxconnBuyer(Greening): Apple
Buyer Scenario 2: C2 Scenario 4: C4

(i) The supplier is responsible for greening. (i) The supplier is a pure profit maximiser.
(ii) The buyer is responsible for CSR. (ii) The buyer is responsible for both greening and CSR.
The supplier’s optimisation problem is: The supplier’s optimisation problem is:

max πS = T (·)−sq−Iθ 2 max πS = T (·)−sq

T (·),θ T (·)

s. t . IC: q = argmax μB (·) s. t . IC: (q,θ) = argmax μB (·)

q q,θ

IR: πB (·) = pq−T (·) q ⩾ πB IR: πB (·) = pq−T (·) q−Iθ 2 ⩾ πB

τ q2 τ q2
μB (·) = (1−τ ){pq−T (·) q} + μB (·) = (1−τ ){pq−T (·) q−Iθ 2} +
2b 2b
Example: Example:
Supplier(Greening): Patagonia Supplier: Sona Koyo Steering Systems Limited
Buyer(CSR): Wal-mart Buyer(Greening + CSR): Maruti Suzuki India Limited

Table 2
Notations.
Notations Meaning/ Explanation

a Overall market potential

b Own-price sensitivity of demand
p Unit selling price of the buyer
q Buyer’s order quantity
α Consumer sensitivity to greening level improvement
τ Social responsiveness index
s Marginal production cost of the supplier
θ Product greening improvement level
I Greening investment parameter
w Per unit price
L Franchise fee
μ Objective function of a socially responsible supply chain agent
π Profit function of a supply chain agent
πB Reservation profit level of buyer
m Per unit margin
Subscript
WP Wholesale price contract
LTT Linear two-part tariff contract
C Centralised supply chain
S Supplier
B Buyer
Superscript
C1 Supplier is doing both greening and CSR.
C2 Supplier is doing greening and buyer is doing CSR.
C3 Supplier is doing CSR and buyer is doing greening.
C4 Buyer is doing both greening and CSR.

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4.1. Centralised supply chain

In a centralised supply chain, all decisions are taken by a central planner who possesses all the relevant information. The central
planner decides the optimal retail price, order quantity and greening level, for the entire supply chain. A centralised supply chain
avoids the problem of double marginalisation and allows both supply chain agents to align their objectives perfectly. As a result, all
equilibrium decisions are globally optimised, and they serve the purpose of benchmark solution for our subsequent analyses (Corbett
et al., 2004). The optimisation problem of the central planner is given by Eq. (1).

max μC (·) = (1−τ ){(p−s ) q−Iθ 2} + τ q2 /2b

p, θ (1)

The condition of joint concavity for the objective function and the optimal values of retail price, order quantity, greening level,
supply chain profit and consumer surplus are presented in Proposition 1.
Proposition 1. μC (·) is jointly concave in (p, θ) if the following conditions hold: (i) I > α 2 (1−τ )/{2b (2−3τ )} and (ii) τ ∈ [0, 2/3) . For a given
value of τ ∈ [0, 2/3) in a centralised supply chain, the optimal retail price is: pC∗ = s + 2IN (1−2τ )/ D , optimal order quantity is:
qC∗ = 2IbN (1−τ )/ D , the optimal greening level is: θC∗ = αN (1−τ )/ D , optimal supply chain profit is: πC∗ = I (1−τ )(D−2bIτ )(N / D)2 , and
optimal CSR level is: CSRC∗ = 2bτ {IN (1−τ )/ D} 2 , where, (i) D = 2Ib (2−3τ )−α 2 (1−τ ) and (ii) N = a−bs .
Proposition 1 represents the generalised condition for concavity of the triple bottom line objective function of a supply chain. The
lower bound of greening investment is given in the above proposition. Proposition 1 signifies that greening investment is not cheap
and manufacturers have to invest certain minimum amount. The first condition (I > α 2 (1−τ )/{2b (2−3τ )}) puts a restriction on the
greening investment parameter. Higher CSR indicates firms putting more weight on CSR while higher investment indicates firms
investing in technology, machine equipment, to produce the green product. This is the reason why many firms in real-life are
reluctant to invest in greening. For instance, in India, automobile firms have to adopt BS VI fuel norms by 2020 to make the fuel
green. However, in totality, oil sector firms have to invest around $ 4.13 billion on technology to adopt BS VI norms17. Therefore,
many oil firms are hesitant to invest in green technology.
The case of a centralised green supply chain can be represented by the conditions: α ≠ 0 and τ → 0; in this case, the criterion for
the concavity of the objective function takes the form: I > limτ → 0 α 2 (1−τ )/{2b (2−3τ )} = α 2/4b . This behaviour of joint concavity
criterion corresponds to the one that we observe in a dyadic green supply chain (Ghosh and Shah, 2015). The case of the socially
responsible supply chain can be presented by the conditions: α → 0 and τ ≠ 0.
In this case the criterion for the concavity of the objective function is: I > 0 and it directly follows from the definition of greening
cost, C (θ) . From the central planner’s optimal profit and objective function expressions, we can observe that, ∂πC∗/ ∂τ < 0 and
∂μC∗ / ∂τ > 0 . Therefore, the central planner’s profit is decreasing whereas the value of the firm’s objective function is increasing in its
CSR effort τ . We can observe that, ∂μC∗ / ∂τ > 0 ⇒ ∂CSRC∗ / ∂τ > 0 and |∂CSRC∗ / ∂τ| > |∂πC∗/ ∂τ|; in other words, in a centralised supply
chain, the consumer surplus is increasing in τ . We can also observe that |∂CSRC∗ / ∂τ| > |∂πC∗/ ∂τ| implies that the rate of increase in CSR
level is higher than the rate of decrease in profit level. We further observe that μC∗− μC∗ > 0 ; this implies that the combination of
α→0
τ→0
environmental and social efforts improves supply chain performance, provided the consumers have awareness regarding sustain-
ability and are willing to pay extra for greener products.
Proposition 1 provides the most generalised optimal solutions for a dyadic supply chain. We can derive optimal results for specific
types of supply chains such as, profit only supply chain, green supply chain and socially responsible supply chain, from Proposition 1.
This can be demonstrated as follows. If the central planner is primarily socially responsible, we have: α → 0 and τ ≠ 0 . In this case,
2 (1 − τ ) N 2
optimal supply chain profit is: lim α → 0 πC∗ =
(1 − τ )(1 − 2τ )
b { N
}
(2 − 3τ )
and CSR level is: lim α → 0 CSRC∗ =
τ
2b { }
(2 − 3τ )
. This behaviour of the
central planner’s optimal profit corresponds to the one that we observe in a dyadic socially responsible supply chain (Panda et al.,
2015). If the centralised supply chain focuses only on greening, it can be represented as: τ → 0 and α ≠ 0 . In that case, the optimal
IN2
supply chain profit is: limτ → 0 πC∗ = 4bI α2 . This behaviour of the central planner’s optimal profit corresponds to the one that we
−
observe in a dyadic green supply chain (Ghosh and Shah, 2015). If the central planner exhibits only profit maximising behaviour, it is
N2
represented by: τ → 0 and α → 0 . In that case, the central planner’s optimal profit is: limτ →0 πC∗ = 4b . Therefore, Proposition 1
α→0
provides the most generalised optimal solutions for a dyadic supply chain. These results for centralised supply chain serve the
purpose of a benchmark solution for subsequent analysis of four decentralised supply chain structures.

4.2. Decentralised supply chain

We first present the optimal contract analysis of WP contract. Subsequently, we present the optimal contract analysis of LTT
contract. Both of these analyses are carried out for four different structures of decentralised supply chain, as described in Table 1.
Finally, we discuss the implications of the obtained results in the specific scenarios of green supply chain and socially responsible
supply chain.

17
Baggonkar, S. and Modi, A. (Jan 7, 2016), “Govt to leapfrog to BS-VI from 2020”, Business Standard, retrieved from: http://www.business-standard.com/article/
economy-policy/govt-to-leapfrog-to-bs-vi-from-2020-116010700054_1.html, accessed on 11/03/2018.

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I. Biswas et al. Transportation Research Part E 115 (2018) 213–226

4.2.1. Analysis of WP contract: Characteristics of optimal parameters

We first present the optimal parameters such as, order quantity, retail price, greening level, consumer surplus and profits of
supply chain agents, in the case of WP contract. We compare these optimal values across all the four scenarios of decentralised supply
chain structure.
Proposition 2. In a decentralised supply chain with WP contract: (i) optimal per unit wholesale prices are in following order:
C2 C1 C3 C4 C1 C2 C3 C4
[w∗]WP > [w∗]WP > [w∗]WP > [w∗]WP , (ii) optimal retail prices are in the following order: [p∗ ]WF > [p∗ ]WF > [p∗ ]WF > [p∗ ]WF > pC∗, and
(iii) the supplier’s per unit margins are in following order: [mS∗]WP
C2
> [mS∗]WP
C1
> [mS∗]WP
C3
> [mS∗]WPC4
, ∀ τ ∈ [0,1/2) and α 2/4b < I < α 2/2b .
From Proposition 2 we can observe that the order of optimal retail prices does not follow that of the optimal wholesale prices. In
scenario C4 where the buyer is responsible for both greening and CSR, its wholesale price is minimum. This can be attributed to the
fact that in scenario C4, the buyer does not need to pay an additional price to the supplier for greening, unlike scenarios C1 and C3. As
a result, the optimal retail price of the product is also minimum in scenario C4. Therefore, from the perspective of a consumer, C4 is
the best strategy for a decentralised supply chain to adopt triple bottom line approach. On the other hand, the retail price is highest in
scenario C1 where the supplier is responsible for both greening and CSR. In WP contract, the per unit profit margin of the supplier is
highest in scenario C2 where the supplier is responsible for greening and the buyer is responsible for CSR, and it is lowest in scenario
C4 where the supplier is a pure profit maximiser. Therefore, as the supply chain agents decide to adopt TBL policies for the entire
chain, ‘doing nothing’ is the worst possible strategy for a supplier. However, from the perspective of per unit margin, the supplier
would prefer scenario C2 where the supplier is responsible for greening and the buyer is responsible for CSR.
Proposition 3. In a decentralised supply chain with WP contract: (i) optimal greening levels are in the following order:
θC∗ > [θ∗]WF
C4 C3
> [θ∗]WF C2
> [θ∗]WF C1
> [θ∗]WF and (ii) optimal order quantities are in the following order:
∗ ∗ C4 ∗ C3 ∗ C2 ∗ C1
qC > [q ]WF > [q ]WF > [q ]WF > [q ]WF ,∀ τ ∈ [0,1/2) and α 2/4b < I < α 2/2b .
Proposition 3 provides us with two interesting results. In scenario C4 when the buyer is doing both greening and CSR, order
quantity and greening level are higher compared to all the other scenarios. In a greening supply chain, a supplier is typically thought
to be in a position to exert maximum effort for greening since the greening cost is incurred during processing (Ghosh and Shah, 2012).
However, in the case of WP contract, we observe that in a supply chain with TBL objective, the buyer provides us with highest
greening level. In scenario C4, in spite of the additional cost that the buyer incurs for greening, the optimal order quantity is also
higher compared to all other cases. Both these results are counterintuitive in nature. This result, in essence, presents a conflict with
responsibility allocation since a supplier knows ‘doing nothing’ would lead to minimum profit margin; yet, behaving like a pure profit
maximiser yields the best greening level and order quantity for the entire supply chain. From the perspective of profit margin, a
supplier would be comfortable with adopting C2 strategy for the entire supply chain. However, from the perspective of the consumer
and the overall supply chain, C4 is definitely a better strategy to adopt.
C1 C2 C3 C4
Proposition 4. In a decentralised supply chain with WP contract: (A) optimal order quantities: [q∗]WP , [q∗]WP , [q∗]WP , and [q∗]WP , greening
∗ C1 ∗ C2 ∗ C3 ∗ C4 ∗ C1 ∗ C2 ∗ C3 ∗ C4
levels: [θ ]WP , [θ ]WP , [θ ]WP , and [θ ]WP , supplier’s profits: [πS ]WP , [πS ]WP , [πS ]WP , and [πS ]WP , buyer’s profits: [πB]WP , [πB]WP , [πB∗]WP
∗ C1 ∗ C2 C3
, and
[πB∗]WP
C4
are increasing in a , α and τ , and decreasing in s and I ; retail prices: [p∗ ]WP C1 C2
, [p∗ ]WP C3
, [p∗ ]WP C4
, and [p∗ ]WP are increasing in a and α , and
C1
decreasing in s , τ , and I ∀ τ ∈ [0,1/2) and α 2/4b < I < α 2/2b ; (B) optimal wholesale prices follow these characteristics: [w∗]WP is increasing in
C2 C3
a, s and α , and decreasing in τ and I ; [w∗]WP is increasing in a , s , α , and τ , and decreasing in I ; [w∗]WP is increasing in a , s , and I , and
C4
decreasing in τ and α ; [w∗]WP is increasing in a and s , and is independent of τ , α , and I .
From Proposition 4, we observe that the optimal order quantity, greening level, supplier’s profit and buyer’s profit, increase in
consumer sensitivity to greening (α ), social responsiveness index (τ ), are decreasing in greening investment parameter (I ) for all four
cases. We observe that consumer sensitivity to greening (α ) positively impacts all decision variables. This is because, to meet con-
sumer demand, supply chain agents have to produce greener products; to produce greener products, the firms have to invest in green
technology. To compensate, the buyer sets higher retail price. However, green conscious consumers are willing to pay a premium for
greener products18. Proposition 4 also reveals some important characteristics of optimal per unit wholesale prices. In scenario C4, the
optimal wholesale price is independent of α , τ and I . In this scenario, the supplier acts as a pure profit maximiser and the buyer is
responsible for both greening and CSR. As a result, the supplier’s choice of optimal wholesale price is influenced by either greening or
CSR related parameters. If the supplier is socially responsible for scenarios C1 and C3, its optimal wholesale price decreases in τ ;
otherwise, it either increases in τ or is independent of τ . If the supplier is responsible for greening, for scenarios C1 and C2, its optimal
wholesale price decreases in greening investment parameter, I .
Generalizability of our proposed framework for a supply chain with triple bottom line approach can be understood from the
following discussion. When a supply chain focuses primarily on greening, the discussed four scenarios degenerate into two: (a) the
supplier puts efforts for greening and therefore incurs greening cost; and, (b) the buyer puts efforts for greening and incurs greening
cost. For τ → 0 and α ≠ 0 , scenarios C1 and C2 represent a greening supply chain where the supplier is responsible for greening; C3
and C4 represent the scenario where the buyer is responsible for greening. Similarly, when a supply chain focuses primarily on social
responsibility, the aforementioned four scenarios degenerate into two: (a) the supplier is socially responsible and utilizes a fraction of
consumer surplus for CSR activities; and, (b) the buyer is socially responsible and utilises a fraction of consumer surplus for CSR

18
Gibbs, A. (Nov 4, 2016) “Millennials willing to pay more for sustainable better quality goods”, CNBC news report, retrieved from: https://www.cnbc.com/2016/
11/04/millennials-willing-to-pay-more-for-sustainable-better-quality-goods-nestle-chairman.html, accessed on 11/03/2018.

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Table 3
Green, socially responsible and profit only, decentralised supply chains parameters.
Optimal parameter(s) Green supply chain Socially responsible supply chain Profit maximising supply chain

S(G) B(G) S(SR) B(SR)

Parametric Condition(s) τ = 0 and α ≠ 0 τ ≠ 0 and α = 0 τ = 0 and α = 0

Supplier’s profit IN2 IN2 N2 (1 − τ )2 N2 (1 − τ ) N2
8Ib − α2 2(4Ib − α2) 2b (4 − 5τ ) 4b (2 − 3τ ) 8b
Buyer’s profit 4I 2bN2 IN2 N2 (1 − τ )2 N2 (1 − τ )2 N2
(8Ib − α2)2 4(4Ib − α2) b (4 − 5τ )2 8b (2 − 3τ ) 16b
Wholesale Price s+
4IN
s+
N
s+
(2 − 3τ ) N
s+
N
s+
N
8bI − α2 2b b (4 − 5τ ) 2b 2b
Retail Price 6IN
+s N (6bI − α2) N (3 − 4τ )
+s
N (3 − 5τ )
+s
3N
+s
8bI − α2
+s 2b (2 − 3τ ) 2b (2 − 3τ ) 4b
2b (4bI − α2)
Order Quantity 2bIN bIN N (1 − τ ) N (1 − τ ) N
8bI − α2 4bI − α2 4 − 5τ 2(2 − 3τ ) 4
Greening level αN αN – – –
8bI − α2 2(6bI − α2)
CSR level – – τ (1 − τ ) N 2 τ (1 − τ ) N 2 –
{
2b (4 − 5τ ) } {
8b (2 − 3τ ) }
Note: (i) S(G): Supplier is responsible for greening; (ii) B(G): Buyer is responsible for greening; (iii) S(SR): Supplier is responsible for CSR; (iv) B(SR):
Buyer is responsible for CSR; (v) N = a−bs .

activities. For τ ≠ 0 and α → 0 , scenarios C1 and C3 represent a socially responsible supply chain where the supplier undertakes CSR;
C2, and C4 represent the scenario where buyer is responsible for CSR. For τ → 0 and α → 0 , all four scenarios degenerate into one,
and it represents a pure profit supply chain. We present all these special cases through Proposition 5.
Proposition 5. In a decentralised supply chain with WP contract, optimal parameters of (i) green supply chain, (ii) socially responsible supply
chain, and (iii) pure profit supply chain, can be calculated from the proposed generalised framework, and they are presented in Table 3.
S (G ) B (G ) S (G ) B (G )
In case of decentralised green supply chains, we observe: [p∗ ]WP > [p∗ ]WP and [w∗]WP > [w∗]WP . The optimal retail price is
higher when the supplier is responsible for greening and this result is consistent with the optimal per unit wholesale price. This is due
to fact that when the supplier charges higher wholesale price from the buyer for compensating the additional cost for greening, the
S (G ) B (G ) S (G ) B (G )
buyer sets a higher retail price. In this case we also observe: [q∗]WP < [q∗]WP and [θ∗]WP < [θ∗]WP . Interestingly, both greening
level and order quantities are higher when the buyer puts in greening effort. In case of decentralised socially responsible supply chain,
S (SR) B (SR) S (SR) B (SR) S (SR) B (SR) S (SR) B (SR)
we observe: [p∗ ]WP > [p∗ ]WP , [w∗]WP > [w∗]WP , [q∗]WP < [q∗]WP and [CSR∗]WP < [CSR∗]WP . The retail price and whole-
sale price are higher when supplier puts efforts which is consistent with green supply chain. CSR level and order quantity are higher
when the buyer puts efforts in CSR.
One interesting observation is: if the buyer is either socially responsible or undertakes greening, then the per unit wholesale price
is independent of social responsiveness index (τ ) and consumer sensitivity of greening (α ) depending on the responsibility under-
taken. For both green and socially responsible supply chains, optimal order quantity increases if the buyer takes up the responsibility
of greening or CSR, as the case may be. These results corroborate with the findings of other scholars who have investigated green
supply chain (Ghosh and Shah, 2012; 2015) and socially responsible supply chain (Panda, 2014). This indicates that the proposed
model is a generalised model of supply chain with triple bottom line approach. In the green supply chain, when either the buyer or
the supplier puts greening effort, the supplier profit is always higher than buyer profit. However, in socially responsible supply chain,
the supplier earns higher profit compared to the buyer if the buyer takes responsibility of CSR.
From the above analysis, we can conclude that optimal greening level or CSR level are higher when the buyer is responsible for
greening or CSR efforts. This is the natural outcome from our analysis and they are consistent with the previous findings of
Propositions 2 and 3. However, in reality, it is not possible to achieve sustainability if the supplier decides not to put greening effort
since greening effort is primarily process dependent and the supplier is in a better position to adopt greening in any supply chain. In
practice, most manufacturing activities are done by either supplier, or manufacturer contracted by the supplier. Furthermore, these
suppliers are supervised by regulatory bodies for maintenance of environmental standards. On the other hand, buyers are more
consumer-centric and it is likely that they face the public directly. Under such circumstances, one possible solution could be: the
supplier should put efforts in greening and buyers should put efforts in CSR.

4.2.2. Analysis of LTT contract: Characteristics of optimal parameters

Several scholars have analysed channel coordinating LTT contract in the context of profit only supply chain (Corbett et al., 2004;
Biswas et al., 2016) and green supply chain (Chen et al., 2017; Ghosh and Shah 2012; Ma et al., 2017). Calculation of optimal LTT
contract has not been discussed in extant literature of sustainable supply chain. LTT contract is characterised by: (a) a lump-sum
payment (L), and (b) a per unit price (w). In the LTT contract, besides per unit price, the buyer also pays lump-sum amount L to the
supplier. Two-part tariff is the most efficient contract form (from a supplier’s perspective) to extract the entire profit from the buyer
(Tirole, 1988; Corbett et al., 2004). Therefore, in the context of deterministic demand set up, we can capture the dynamics between
supply chain agents through this contract. We calculate an optimal LTT contract in the context of TBL, and present the same through
Proposition 6.

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Table 4
Optimal LTT contract.
Parameters Responsibility of Greening

Supplier Buyer

Responsibility of CSR Supplier Scenario 1: C1 Scenario 3: C3

Per unit price [w∗]C1
LTT = s−2IτN / D [w∗]C3
LTT = s−2IτN / D
Franchise fee 1
[L∗]CLTT = 4b {
IN (1 − τ ) 2
} −πB 3
[L∗]CLTT = (4bI −α2) I {
(1 − τ ) N 2
} −πB
D D
Buyer Scenario 2: C2 Scenario 4: C4
Per unit price 2
[w∗]CLTT =s+
2IτN 4
[w∗]CLTT =s+
2IτN
D + 2Ibτ D + 2Ibτ
Franchise fee 2
[L∗]CLTT =
4b (1 − 2τ )
(
IN
)2−πB 4
[L∗]CLTT =
4b (1 − 2τ )
(
IN
)2−πB
1−τ 4bI − α2 1−τ 4bI − α2

Note: (i) N = a−bs , (ii) D = 2Ib (2−3τ )−α 2 (1−τ ) .

Proposition 6. A decentralised supply chain can be coordinated by a LTT contract when the supplier is socially responsible, irrespective of
which supply chain agent is responsible for greening; it cannot be coordinated by a LTT contract when the buyer is socially responsible. Optimal
LTT contract for all four scenarios of decentralised supply chain structure are presented in Table 4.
The contract structure suggests that when the supplier takes responsibility of CSR, then it charges a wholesale price lower than the
marginal cost, but gains revenue from the lump-sum payment paid by the buyer. If the buyer takes social responsibility, then the
supplier just recovers the manufacturing cost per unit. In all these cases, the supplier earns profits through the lump-sum amount or
franchise fee paid by the buyer. We further observe that: (i) when a supplier is socially responsible, then in scenarios C1 and C3, the
overall supply chain coordinates, and (ii) when the buyer is socially responsible, then in scenarios C2 and C4, the overall supply chain
does not coordinate.
From Proposition 6, we can also derive optimal LTT contract forms for green, socially responsible and profit only supply chains.
τ → 0 and α ≠ 0 represent a green supply chain and the discussed four scenarios degenerate into two: (a) the supplier puts efforts for
greening and incurs greening cost; and, (b) the buyer puts efforts for greening and incurs greening cost. τ ≠ 0 and α → 0 represent a
socially responsible supply chain and the aforementioned four scenarios degenerate into two: (a) the supplier is socially responsible
and utilises a fraction of consumer surplus for CSR activities; and, (b) the buyer is socially responsible and utilises a fraction of
consumer surplus for CSR activities. τ → 0 and α → 0 represent a pure profit supply chain and all four scenarios degenerate into one.
We present optimal LTT contract for all these special cases in Table 5.
Table 5 establishes the generalizability of our proposed framework for a supply chain with triple bottom line approach, in the
context of analysing LTT contract. From Table 5, it is evident that LTT contract can coordinate a green supply chain irrespective of the
responsibility of greening as well as a profit only supply chain. On the other hand, a socially responsible supply chain cannot be
coordinated through a LTT contract. In the next proposition, we compare different optimal parameters of a decentralised supply chain
with LTT contract.
Proposition 7. In a decentralised supply chain with LTT contract: (i) optimal per unit prices are in the following order:
2 4 3 1 1 3 2 4
[w∗]CLTT = [w∗]CLTT > [w∗]CLTT = [w∗]CLTT , (ii) optimal franchise fees are in the following order: [L∗]CLTT > [L∗]CLTT ,[L∗]CLTT > [L∗]CLTT , (iii)
2 4 3 1
optimal greening levels are in the following order: [θ∗]CLTT = [θ∗]CLTT < [θ∗]CLTT = [θ∗]CLTT = θC∗ and, (ii) optimal order quantities are in the
2 4 3 1
following order: [q∗]CLTT = [q∗]CLTT < [q∗]CLTT = [q∗]CLTT = qC∗.
From Proposition 7, we observe that, in scenarios C2 and C4, the optimal order quantity and greening level are less than those of
the centralised case. This is attributed to the fact that in C2 and C4, the supply chain fails to coordinate. In the cases of channel
coordination, supplier charges highest franchise fee in scenario C1 when the supplier is responsible for both greening and CSR. In
cases of non-coordination, the supplier charges the least in scenario C4 when the supplier is only a profit maximiser.
We have already observed from Proposition 6 that the decentralised supply chain does not coordinate in scenarios C2 and C4.
However, it is possible to design special LTT contracts such that the supply chain can coordinate even for these two scenarios. In
practice, the wholesale price contract is most prevalent, though it does not coordinate a supply chain. Therefore, it can be utilised to

Table 5
Parameters for green, socially responsible and profit only decentralised supply chains.
Optimal parameter(s) Green supply chain Socially responsible supply chain Profit maximising supply chain

S(G) B(G) S(SR) B(SR)

Parametric Condition(s) τ = 0 and α ≠ 0 τ ≠ 0 and α = 0 τ = 0 and α = 0

Wholesale Price s s s−
τN
s+
τN s
b (2 − 3τ ) 2b (1 − τ )
Franchise Fee 2 IN2 N (1 − τ ) 2 (1 − 2τ ) N2 N2
4b ( IN
4bI − α2 ) −πB 4bI − α2
−πB
1
b { 2 − 3τ } −πB 4b (1 − τ )
−πB
4b
−πB

Note: N = a−bs .

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serve the purpose of a lower bound device and subsequently, we can design a Pareto optimal channel coordinating contract by
comparing a LTT contract to this lower bound to improve profit of a supplier. For scenarios C2 and C4, such specially designed
channel coordinating LTT contracts are presented through Proposition 8.
Proposition 8. In a decentralised supply chain, when the buyer is socially responsible, channel coordinating special LTT contracts can be
designed, and they are as follows.

(i) In scenario C2 when the supplier is responsible for greening,

a. the optimal per unit price is: w = s , and
b. the range of franchise fee is:

4I 2bN 2 (2−3τ )(1−τ ) 16I 3b2N 2 (1−2τ )(2−3τ )(1−τ ){D + Ib (2−3τ )}
⩽L⩽
D + 2Ib (2−3τ ) [D {D + 2Ib (2−3τ )}]2

(ii) In scenario C4 when the supplier is only profit maximiser,

a. The optimal per unit price is: w = s , and
IN2 (1 − τ ) 3IN2 (1 − τ )(D − 2Ibτ )
b. The range of franchise fee is: ⩽L⩽
2D 4D2

Upper bound on the lump-sum amount (L) determines the constraint beyond which the buyer would not like to participate in the
LTT contract, and lower bound on the lump-sum amount (L) determines the constraints beyond which supplier would not like to
participate in the contract. Moreover, the final value will depend upon the relative bargaining power of the channel partner.
For a better understanding of the comparison between optimal franchise fee, retail prices and order quantities and the relevant
supply chain parameters, we carry out a numerical analysis in the next section. It enables us to understand: (i) the optimal operating
range of both social responsiveness index (τ ) and greening sensitivity parameter (α ); and, (ii) their influence on profitability of a
supply chain agent who chooses only one of the two available TBL strategies.

5. Numerical example

In this section, we present a simple numerical example to illustrate and discuss distribution of objective functions and retail prices
for a dyadic supply chain with TBL approach. We set the following common values for all exogenous parameters of a supply chain: (i)
market potential, a = 150 ; (ii) own-price sensitivity of demand, b = 0.5; (iii) marginal production cost of the supplier, s = 2 ; and, (iv)
greening investment parameter, I = 250 . The value of consumer sensitivity to greening level improvement (α ) is varied from 0.5 to
7.5, and the value of social responsiveness index (τ ) is varied from 0.05 to 0.25. The following conditions (a) τmax = 0.25 < 2/3, and
2
(b) I = 250 > α max (1−τmax )/{2b (2−3τmax )} = 33.75 ensure that for the chosen ranges of α and τ , profit functions of the supplier and
buyer are jointly concave in retail price ( p ) and greening level (θ ). Therefore, feasible solutions for WP and LTT contracts exist.
For a given value of social responsiveness index, τ = 0.25, the behaviour of supplier’s optimal profit functions against consumer
sensitivity to greening level improvement (α ), for all cases of decentralised supply chain structure, are presented in Fig. 1.
From Fig. 1, we can observe that, for both WP and LTT contracts, the supplier’s profit is increasing over the entire range of α for all
cases of decentralised supply chain structures. For each scenario of supply chain structure (C1, C2, C3, and C4), the rate of increase of
supplier’s profit with respect to α for LTT contract is higher than that observed in the case of WP contract. In this case, we can further
observe that optimal supplier profit levels are in the following order:

WP(C1) WP(C3) WP(C2) WP(C4)

LTT(C1) LTT(C3) LTT(C2) LTT(C4)

6000

5500

5000
Supplier's Profit

4500

4000

3500

3000

2500

2000
0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 7.5
Consumer sensitivity towards greening(Į)
Fig. 1. Supplier’s profit (πS ) v/s Consumer sensitivity towards greening (

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I. Biswas et al. Transportation Research Part E 115 (2018) 213–226

WP(C1) WP(C3) WP(C2) WP(C4)

LTT(C1) LTT(C3) LTT(C2) LTT(C4)

5500

5000
Supplier's Profit

4500

4000

3500

3000

2500

2000
0.05 0.06 0.08 0.09 0.10 0.12 0.13 0.14 0.16 0.17 0.18 0.20 0.21 0.22 0.24

Social responsiveness index(IJ)

Fig. 2. Supplier’s profit (πS ) v/s Social responsiveness index (τ ).

[πS∗]CLTT
4
= [πS∗]CLTT
2
> [πS∗]CLTT
1
= [πS∗]CLTT
3
> [πS∗]WP
C4
> [πS∗]WP
C2
> [πS∗]WP
C3
> [πS∗]WP
C1
. Consistent with the understanding of LTT contract, in
supply chains with triple bottom line objective, LTT contract yields higher profit for the supplier compared to WP contract.
For a given value of consumer sensitivity to greening level improvement, α = 5.00 , the behaviour of supplier’s optimal profit
functions against social responsiveness index (τ ), for all cases of decentralised supply chain structure, are presented in Fig. 2. From
Fig. 2 we can observe that, for both WP and LTT contracts, supplier’s profits are decreasing over the entire range of τ for scenarios C1
and C3. For WP contract, it is increasing over the entire range for scenarios C2 and C4. For LTT contract, supplier’s profit is constant
over the entire range for scenarios C2 and C4. We can further observe that optimal supplier’s profits follow the order:
[πS∗]CLTT
4
= [πS∗]CLTT
2
> [πS∗]CLTT
1
= [πS∗]CLTT
3
> [πS∗]WP
C4
> [πS∗]WP
C2
> [πS∗]WP
C3
> [πS∗]WP
C1
.
For a given value of social responsiveness index, τ = 0.25, the behaviour of buyer’s optimal profit functions against consumer
sensitivity to greening level improvement (α ), for all cases of decentralised supply chain structure, are presented in Fig. 3. The rate of
increase of buyer’s profit with respect to α for scenario C3 is highest and that for C4 is the lowest. We can further observe that optimal
buyer’s profit level follows the order: [πB∗]WP C3
> [πB∗]WP
C1
> [πB∗]WP
C2
> [πB∗]WP
C4
.
For a given value of consumer sensitivity to greening level improvement, α = 5.00 , the behavior of buyer’s optimal profit functions
against social responsiveness index (τ ), for all cases of decentralised supply chain structure, are presented in Fig. 4. For WP contract,
we can see that optimal buyer’s profits are increasing for scenarios C1 and C3 in social responsibility index while it is decreasing for
scenarios C2 and C4. We can further observe that optimal buyer’s profits follow the order: [πB∗]WP C3
> [πB∗]WP
C1
> [πB∗]WP
C2
> [πB∗]WP
C4
.

6. Conclusion

In this paper, we have compared four different structures of decentralised supply chain based on allocation of sustainability
responsibilities among supply chain agents for two different types of contracts. We have examined the problem from the supplier’s
perspective and have analysed supply chain performance by calculating optimal retail prices, order quantities, greening levels, CSR
levels and profit distributions. We have demonstrated that a suitably designed two-part tariff contract can coordinate a decentralised
supply chain which incorporates all aspects of TBL when the supplier is socially responsible. We have further demonstrated how

WP(C1) WP(C3) WP(C2) WP(C4)

4500

4000
Buyer’s profit

3500

3000

2500

2000
0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 7.5
Consumer sensitivity towards greening(Į)
Fig. 3. Buyer’s profit (πB ) v/s Consumer sensitivity towards greening (α ).

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WP(C1) WP(C3) WP(C2) WP(C4)

1600

1500
Buyer’s profit

1400

1300

1200

1100
0.05 0.06 0.08 0.09 0.10 0.12 0.13 0.14 0.16 0.17 0.18 0.20 0.21 0.22 0.24

Social responsiveness index(IJ)

Fig. 4. Buyer’s profit (πB ) v/s Social responsiveness index (τ ).

greening and CSR indices influence various optimal parameters. We have numerically compared between WP and LTT contracts in
terms of profit allocation. The results would enable practitioners to strategise coordination policy for any decentralised supply chain
that incorporates both greening as well as CSR efforts. In Table 6 we summarise the research implications with respect to the research
questions raised in Section 1.
A major contribution of this paper is that it provides simultaneous treatment of greening and CSR efforts for four different

Table 6
Findings and implications with respect to the key research questions.
Research Question(s) Research finding(s) Managerial implication(s)

How can all the dimensions of TBL: (i) economic,
(ii) environmental, and (iii) social, be
integrated into one unified framework of supply
chain?
How does environmental and social effort impact
supply chain performance?
In a sustainable supply chain, how should
responsibility of sustainability (environmental
and social responsibilities) be distributed so
that it also yields the best performance for the
overall supply chain?
Under which circumstances does a supply chain
with triple bottom line objective coordinate?
We have proposed a unified framework by Optimal values of decisions variables could help
simultaneous consideration of economic, managers to maximise their profits. As per
environmental and social aspect, to designing threshold value of consumer surplus, managers
supply chains. Our result indicates: can make a plan a priori for investment in CSR
(a) in a centralised supply chain, a central planner
can put a maximum of 66% of consumer surplus
into CSR activities;
(b) In a decentralised supply chain, a socially
responsible supply chain agent can put a maximum
of 50% of consumer surplus into CSR activities
Environmental and social effort improves supply There is a widespread belief among practitioners
chain performance, provided consumers are that greening investment might lead to reduction
willing to pay extra for environmentally friendly in profitability of a firm. Our results indicate that
and socially responsible products implementation of TBL increases profit. Therefore,
managers should be motivated to put efforts for
both greening and CSR
We have analysed four different decentralised It is a real challenge for managers to allocate
supply chain structures based on allocation of responsibilities of greening and CSR. We resolve
responsibilities for two different contracts and our this dilemma by showing that responsibility
findings suggest: allocation is dependent on the choice of contract
(a) With WP contract, buyer should take through which the supply chain agents trade with
responsibilities for both greening and CSR as it each other. Based on the choice of contract,
yields the best performance for the overall supply responsibilities for sustainability should be
chain allocated
(b) With WP contract, supplier’s profit margin is
highest when the supplier is doing greening and
the buyer is responsible for CSR
(c) With LTT contract, supplier should be socially
responsible irrespective of allocation of greening
responsibility in order to coordinate the entire
supply chain
(a) With WP contract, a decentralised supply chain Our analysis of a total of eight cases of
with TBL objective does not coordinate decentralised supply chains with TBL objective
(b) With WP contract, a decentralised supply chain function clearly demonstrates, for WP and LTT
performs best with the buyer being responsible for contracts, how greening and CSR responsibilities
both greening and CSR should be allocated among different supply agents
(c) With LTT contract, a decentralised supply chain
coordinates when the supplier is socially
responsible
(d) Only with specially designed LTT contract can
a decentralised supply chain coordinate, when the
buyer is socially responsible

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scenarios of decentralised supply chain structures, and provides us with a framework for responsibility allocation. In the context of
supply chain coordination, such an analytical framework is hitherto unreported in extant literature. We have unified three separate
branches of game-theoretic modelling of supply chains namely, (i) green supply chain, (ii) socially responsible supply chain, and, (iii)
supply chain channel coordination. We have proposed generalised WP and LTT contract terms for a sustainable dyadic supply chain.
The expressions of optimal retail price, order quantity, greening level and profit levels, for pure profit, green, and CSR supply chains,
can be derived from the proposed model. Thus, we demonstrate generalizability of the model. Through numerical analysis, we have
further shown that exclusive responsibility of greening and CSR efforts influence profit distribution among supply chain agents
through two model parameters namely, consumer sensitivity towards greening and CSR index. Our model enables managers to frame
appropriate exclusive distribution policies of greening and CSR efforts.
In this paper, we have assumed single-period and deterministic linear demand function for the purpose of analysis. This as-
sumption can be relaxed, and the problem may be examined in stochastic demand, non-linear deterministic demand, and in a multi-
period setting. We have only considered LTT contract for coordinating the supply chain. Other channel coordinating contracts such
as, revenue sharing, cost sharing contracts, can be considered for analysis as future scope.

Acknowledgements

The authors sincerely thank the Editor-in-Chief, Jiuh-Biing Sheu, the Associate Editor, Tsan-Ming Choi, and two anonymous
reviewers for their valuable comments and suggestions on a previous draft of this paper. Authors are grateful to Prof. R. K. Srivastava
and Rupika Khanna (Doctoral Student) of IIM Lucknow for providing valuable comments on a previous draft of this paper.

Appendix A. Supplementary data

Supplementary data associated with this article can be found, in the online version, at http://dx.doi.org/10.1016/j.tre.2018.05.007.

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