Design of forward supply chains: Impact of a carbon emissions-sensitive demand

We explore the impacts of a carbon emissions-sensitive demand on decisions relative to the design of forward supply chains (facility location, supplier selection, production technology selection and transportation mode selection). We investigate the design of a forward SC where a set of input items (components) are purchased from a network of external suppliers and used to manufacture a finished product in one or multiple production facilities to fulfill the demand of one or multiple customers. The demand for the final product is an endogenous variable sensitive to carbon emissions per unit and it is also assumed to increase with a decrease in the per unit carbon emissions of the product. We consider the case of a single customer and extend the model to multiple customers. Based on numerical experiments conducted on a case study from the textile industry, we use the models to provide a series of insights that might be instrumental to firms and policy makers. For instance, results indicate that customers׳ environmental awareness may encourage companies to bring the area of production close to the area of consumption and to select local suppliers. It might even be optimal to dedicate a production facility to each customer in spite of the incurred additional costs. However, if the customers are very demanding (in terms of reducing carbon emissions) then the best strategy can be to design a supply chain with relatively high emissions level because satisfying customer requirements may be very expensive in this case. Furthermore, if the customers are willing to pay a higher price for the product then this can lead to reducing per unit emissions. Our results augment the research to the fields of design of forward and greener supply chains by modeling and experimenting an endogenous demand sensitive to carbon emissions.