Will emergency order shifting perform better than recovery waiting at costs of carbon tax and carbon emission reduction?

Abstract

In recent years, frequent extreme disasters have challenged supply chain operations while smart risk warning systems are developed to facilitate firms' emergency order shifting to a new manufacturer. It is noted that reliable manufacturers are usually located in countries/regions levying carbon tax to achieve high ESG scores, so we consider a cross-border supply chain consisting of a global brand, a local brand, an overseas manufacturer and a local manufacturer to investigate the main tradeoffs for the global brand to emergently shift orders from the overseas manufacturer facing disruptions to a stable local manufacturer subject to carbon tax cost. The global brand has the option to wait for the recovery of overseas production but if it chooses emergent order shifting, it has to invest in carbon emission reduction due to ESG requirements. We intriguingly find that even though emergency order shifting helps avert delays caused by production disruptions, a more resilient supply chain does not necessarily lead to a higher profit for the global brand, depending on factors such as the relative market size, carbon tax cost, and the efficiency of carbon reduction investment. We also find that the global brand's emergency order shifting enables Pareto improvement of economic and environmental sustainability, but the win-win opportunities for both the global and local brand only appear under the recovery waiting strategy. So it is generally hard to coordinate the stakeholders' incentives to jointly optimize the ESG scores.