Channel coordination and profit distribution in a social responsible three-layer supply chain S. Panda a,n , N.M. Modak b , M. Basu b , S.K. Goyal c a Department of Mathematics, Bengal Institute of Technology, 1. no. Govt. Colony, Kolkata 700150, West Bengal, India b Department of Mathematics, University of Kalyani, Kalyani 741235, West Bengal, India c Department of Supply Chain Management, John Molson School of Business, Concordia University, Montreal, Canada H3G1M8 article info Article history: Received 14 April 2014 Accepted 24 June 2015 Available online 8 July 2015 Keywords: Corporate social responsibility Channel coordination Wholesale price discount Bargaining abstract This paper analyzes coordination of a manufacturer–distributer–retailer supply chain, where the manufacturer exhibits corporate social responsibility (CSR). In manufacturer-Stackelberg game setting, the paper proposes a contract-bargaining process to resolve channel conflict and to distribute surplus profit among the channel members. The contract-bargaining process consists of two wholesale price discount-Nash bargaining. One between the distributer and the retailer based on the outcome of that between the distributer and the manufacturer. Although the contract-bargaining process cuts out channel conflict and distributes surplus profit, the wholesale prices are quite different from those of a pure profit maximizing supply chain. The wholesale price of the manufacturer is less than its marginal production cost above a threshold of CSR. Even it is negative for the manufacturer's heavy CSR practice. So, the manufacturer's profit may be negative. The behavior of the wholesale price of the distributer is same as that of the manufacturer but for higher threshold of CSR. & 2015 Elsevier B.V. All rights reserved. 1. Introduction Coordination through cooperation is imperative for improving channel wide performance because it offers the potential to realize substantial profit benefit. To coordinate a supply chain, contracts are designed among the decentralized decision makers such that the difference between outcome of a centralized decision and a decen- tralized decision can be neutralized. The basic objective behind designing a coordination contract is to incentimize decentralized channel members to act coherently with one another. A variety of side-payment contracts (e.g. quantity discount, Li and Liu, 2006, two- part tariff, Modak et al., 2015c, revenue sharing, Cachon and Lariviere, 2005; Panda, 2013a, 2014a, sales rebate, Wong et al., 2009, buy back, Ding and Chen, 2008, credit option, Du et al., 2013, commitment to purchase quantity, Zhang et al., 2011, mail-in-rebate, Saha et al., 2015), etc. have been used in supply chains as the ways of cutting out channel conflict. These contracts differ by the contractual clauses among the channel members and are primarily concerned with quantity, time, quality and price. 1 CSR is a form of corporate self-regulation that currently does not has unique definition. Broadly CSR can be defined as a doctrine that promotes expanded social stewardship by businesses and organizations. CSR suggests that corporations embrace responsi- bilities toward a broader group of stakeholders (customers, employees and the community at large) in addition to their customary financial obligations to stockholders. In the current global business environment CSR is now a determining factor in consumer and client choice, in which companies cannot afford to ignore. According to the results of a global survey in 2002 by Ernst and Young, 94% of companies believe the development of a CSR strategy can deliver real business benefits, however only 11% have made significant progress in implementing the strategy in their organization. Senior executives from 147 companies in a range of industry sectors across Europe, North America and Australasia have been interviewed for the survey. The survey has concluded that CEOs are failing to recognize the benefits of implementing CSR strategies, despite increased pressure to include ethical, social and environmental issues into their decision-making processes. For example, on social issue, largest apparel retailer GAP admits to charge of its substandard working conditions in as many as 3000 factories worldwide (Merrick, 2004). Nike is often accused for inhuman labor and business practices in Asian manufacturing factories (Amaeshi et al., 2008). For environmental issues, in 2009 a group of 186 institutional investors having assets of 13 trillion US dollars have signed a statement. It suggests directions to Contents lists available at ScienceDirect journal homepage: www.elsevier.com/locate/ijpe Int. J. Production Economics http://dx.doi.org/10.1016/j.ijpe.2015.07.001 0925-5273/& 2015 Elsevier B.V. All rights reserved. n Corresponding author. Tel.: þ91 9051361884; fax: þ91 3323458077. E-mail addresses: shibaji.panda@gmail.com (S. Panda), nikunja.modak@gmail.com (N.M. Modak), manjusri_basu@yahoo.com (M. Basu), sgoyal@jmsb.concordia.ca (S.K. Goyal). 1 For detailed discussion on channel coordination the reader may consult the survey papers of Cachon (2003) and Sarmah et al. (2007). Int. J. Production Economics 168 (2015) 224–233