Supplier Audit Information Sharing and Responsible Sourcing

Albert Y. Ha · Weixin Shang · Yunjie Wang

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Sustainable Supply Chain Management Merger and Competition Analysis Supply Chain and Inventory Management

Abstract

We develop a game-theoretic model to study the incentive for competing manufacturers to share supplier audit information. Based on the audit information, each manufacturer decides whether to source from a common supplier who has uncertain responsibility violation risk or to switch to a backup supplier who has no responsibility violation risk but charges a higher price. When supplier responsibility violation occurs, some consumers boycott the manufacturers involved. Audit information allows a manufacturer to reduce the uncertainty about the risk of the common supplier. We show that audit information sharing may make the manufacturers’ sourcing strategies more or less differentiated. As a result, the information-sharing decision is not monotone in the model parameters. We fully characterize the manufacturers’ equilibrium audit information-sharing and sourcing decisions and establish conditions under which audit information sharing induces the manufacturers to adopt more or less responsible sourcing strategies. We also show that a manufacturer could be better off when the cost premium of sourcing from the backup supplier or the risk of the common supplier becomes higher or the audit information becomes less accurate. We consider several extensions of the base model and demonstrate that the main insights remain mostly valid. This paper was accepted by Charles Corbett, operations management. Funding: A. Y. Hawas supported by the Wei Lun Foundation. W. Shang was supported by the Research Grants Council of Hong Kong [GRF Project LU 13501415]. Y. Wang was supported by National Natural Science Foundation of China [Grant 71901209]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2022.4358 .

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References

1990A Course in Microeconomic Theory 2015Supplier Evasion of a Buyer’s Audit: Implications for Motivating Supplier Social and Environmental Responsibility 2015Responsible Sourcing in Supply Chains 2015Sourcing Under Supplier Responsibility Risk: The Effects of Certification, Audit and Contingency Payment 2015Carrots or Sticks? Improving Social and Environmental Compliance at Suppliers Through Incentives and Penalties 2019Combating Child Labor: Incentives and Information Disclosure in Global Supply Chains 2018Improving Supplier Compliance Through Joint and Shared Audits with Collective Penalty 2019Ensuring Corporate Social and Environmental Responsibility Through Vertical Integration and Horizontal Sourcing

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2023Buyer collaboration in managing supplier responsibility with ESG due diligence effort spillover and fairness concerns 2022Inducing supplier backup via manufacturer information sharing under supply disruption risk 2023Supply chain short‐term financing for responsible production at small and medium‐sized enterprises 2024Manufacturers’ efforts and platform’s demand information sharing in eco-friendly actions

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