Insourcing versus outsourcing decision under environmental considerations and different contract arrangements

• Published in: International journal of production economics 2022-11, Vol.253, p.108589, Article 108589
• Main Authors: Kandil, Narjes, Hammami, Ramzi, Battaïa, Olga
• Format: Article
• Language: English
• Subjects: Carbon emissions; Cost sharing; Environment and Society; Environmental Sciences; Insourcing; Outsourcing; Revenue sharing
• ISSN: 0925-5273; 1873-7579
• DOI: 10.1016/j.ijpe.2022.108589

We investigate the insourcing versus outsourcing decision for a manufacturer, facing a price- and carbon emission-sensitive demand and an environmental regulation in the form of a carbon tax. We consider the carbon emissions generated during the production phase. In case of outsourcing, the transportation emissions are also considered, and we investigate the outcomes of revenue sharing and cost sharing contracts between the manufacturer and the supplier. We study the impacts of customers’ environmental awareness, carbon tax, price sensitivity, market potential, and supplier’s location on the insourcing vs. outsourcing decision, the environmental performance and the selling price. Our results show that a higher customers’ environmental awareness, a larger market potential and a longer distance between the supplier and the manufacturer favor insourcing over outsourcing, whereas a higher carbon tax and a higher price sensitivity favor outsourcing. •Insourcing versus outsourcing decision model under environmental considerations.•We investigate which contract is more beneficial under outsourcing.•Higher profit and lower emissions under cost sharing compared to revenue sharing.•Customers’ sensitivity to emission may have more impact on greenness than carbon tax.