Supplier Audit Information Sharing and Responsible Sourcing

Albert Y. HA, Weixin SHANG, Yunjie WANG*

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)peer-review

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.
Original languageEnglish
Number of pages17
JournalManagement Science
Early online date17 Jun 2022
DOIs
Publication statusE-pub ahead of print - 17 Jun 2022

Bibliographical note

A. Y. Ha was supported by the Wei Lun Foundation. W. Shang was supported by the ResearchGrants Council of Hong Kong [GRF Project LU 13501415]. Y. Wang was supported by National Nat-ural Science Foundation of China [Grant 71901209]

Keywords

  • sourcing
  • social responsiblity
  • supplier audit
  • information sharing

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