Effects of government's policy on supply chain coordination with a periodic review inventory system to reduce greenhouse gas emissions

Abstract In many countries, the governments and statesmen set various regulations to reduce Greenhouse Gas (GHG) emissions and entities must also comply with these rules to maintain their profitability. This paper aimed to reduce GHG emissions in the two-echelon Supply Chain (SC) with one supplier and one retailer under the government’s policies. Emissions from the intended SC are results of using trucks to deliver orders from the supplier to the retailer to replenish his/her inventory. Furthermore, the demand of market is stochastic and a periodic review inventory system is used by the retailer in which, the supplier determines the visit interval. Since the retailer has direct interaction with the end customer, he/she should select the best SC service level. In this regard, because the supplier as a leader has full authority for the retailer’s inventory replenishment and he/she leads to GHG emissions in the SC, the government is trying to control environmental pollution by applying the subsidy and penalty to the supplier. Therefore, the proposed model has an environmental objective to minimize the GHG emissions and an economical objective to maximize the profitability of the SC. In this study, firstly the decentralized and centralized SCs are analyzed, and then, due to the government’s regulations, the Revenue Sharing (RS) contract and Delay in Payments (DP) contract are used to coordinate SC members. It should be noted that the proposed model is solved by the method of augmented epsilon constraint. Finally, sensitivity analyses of numerical examples show that the government’s policies, with a slight reduction in profitability of the whole SC, can reduce GHG emissions significantly.