Supplier Audit Information Sharing and Responsible Sourcing

Albert Y. Ha (), Weixin Shang () and Yunjie Wang ()
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Albert Y. Ha: School of Business and Management, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon 999077, Hong Kong
Weixin Shang: Department of Computing and Decision Sciences, Lingnan University, Tuen Mun, New Territories 999077, Hong Kong
Yunjie Wang: School of Business, Renmin University of China, Haidian, Beijing 100872, China

Management Science, 2023, vol. 69, issue 1, 308-324

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.

Keywords: sourcing; social responsibility; supplier audit; information sharing (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:69:y:2023:i:1:p:308-324

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