Incentive compatible green procurement using scoring rules

Abstract

Green or sustainable procurement is critical to any supply chain in the modern era. In this paper, we address the issue of selection of suppliers in order to ensure that the procurement process in a manufacturing or service supply chain selects suppliers so as to minimize carbon emissions. The specific problem we address pertains to that of an orchestrator or a procurement planner who wishes to put together a green procurement network consisting of strategic suppliers. Our approach decomposes the problem into two stages. In Stage 1 (information elicitation), the orchestrator uses a green budget to offer appropriate incentives to the suppliers to report their carbon emissions accurately. The incentives are determined using an approach based on proper scoring rules. Having obtained emissions data in Stage 1, the orchestrator identifies a pool of suppliers in Stage 2 (green supplier selection) to minimize the quantum of carbon emissions of the procurement process. The paper focuses on Stage 1 of the problem and develops an incentive compatible mechanism for elicitation of emission estimates. We illustrate the proposed mechanism with a stylized example and also with detailed simulation results.