Impact of Supply Chain Transparency on Sustainability Under NGO Scrutiny

Production and Operations Management, https://doi.org/10.1111/poms.12973

38 Pages Posted: 7 Apr 2015 Last revised: 9 Jul 2019

See all articles by Shi Chen

Shi Chen

University of Washington - Foster School of Business

Qinqin Zhang

Microsoft Corporation

Yong-Pin Zhou

University of Washington - Department of Information Systems and Operations Management

Date Written: October 2, 2018

Abstract

We analyze a brand's disclosure of its supplier list to improve the suppliers' compliance with social and environmental sustainability standards. We develop a model of a buyer, a supplier, and an NGO; when a violation of the supplier occurs, the buyer and the supplier both incur penalties. Given that the disclosure influences the NGO's perception of the supplier and results in a different level of NGO scrutiny, the buyer decides whether to reveal her supplier. Our model characterizes the buyer's optimal revelation strategy and provides the equilibrium efforts of the supplier and the NGO. The results show that an increase in the penalty for the supplier or an increase in the NGO's auditing efficiency always gives the buyer an incentive to reveal the supplier and has a beneficial effect on supply chain sustainability. However, an increase in the penalty for the buyer acts as a deterrent to the revelation, and thus it often has a detrimental effect on sustainability, except when the increase is modest and the buyer makes an individual effort to monitor her supplier. Moreover, although an increase in the NGO's gain in utility from targeting a revealed supplier acts as a deterrent to the revelation, it can have either a beneficial or detrimental effect on sustainability, depending on the extent of the increase and the efficiency of the NGO's auditing. Last, if the buyer can invest in improving the supplier's capability, the above-mentioned factors that have beneficial (detrimental) impacts on sustainability also make the investment more (less) worthwhile.

Keywords: Supply Chain Transparency, Social and Environmental Sustainability, Disclosure of Supplier List, Asymmetric Information and Signaling

Suggested Citation

Chen, Shi and Zhang, Qinqin and Zhou, Yong-Pin, Impact of Supply Chain Transparency on Sustainability Under NGO Scrutiny (October 2, 2018). Production and Operations Management, https://doi.org/10.1111/poms.12973. Available at SSRN: https://ssrn.com/abstract=2590152 or http://dx.doi.org/10.2139/ssrn.2590152

Shi Chen (Contact Author)

University of Washington - Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Qinqin Zhang

Microsoft Corporation ( email )

One Microsoft Way
Redmond, WA 98052
United States

Yong-Pin Zhou

University of Washington - Department of Information Systems and Operations Management ( email )

BOx 353226, Foster School of Business
University of Washington
Seattle, WA Washington 98195-3226
United States

HOME PAGE: http://faculty.washington.edu/yongpin

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