Supply Chain Models with Mutual Commitments and Implications for Social Responsibility

DOI: 10.1111/poms.12674

Posted: 22 Jan 2016 Last revised: 14 Dec 2016

See all articles by Jiguang Chen

Jiguang Chen

School of Management, Xiamen University; Xiamen University

Qiying Hu

Fudan University - School of Management

Jing-Sheng Jeannette Song

Duke University - Fuqua School of Business

Date Written: September 28, 2016

Abstract

In today's increasingly globalized environment, more and more companies recognize the mutual dependence of supply chain partners in value creation. When making business decisions, they take into consideration their partners' bottom line profitability, especially in emerging markets. The question is, is this kind of practice sustainable? This paper makes an attempt to formalize this issue by examining a stylized two-party supply chain model in which each player maximizes its own profit while making a certain commitment to its partner. We compare five different games between the two supply-chain partners, which reflect different power positions of the players and different levels of commitment. We identify conditions under which both players are better off with mutual commitments than without, a situation we call win-win. We show that win-win can be achieved if and only if the mutual commitments are comparable. Thus, the recognition of mutual dependence of the supply chain members needs to be translated into reciprocal concerns. In addition, different players' commitments play different roles but together they have a similar effect as a profit sharing contract. Finally, we discuss the implications of our findings in the context of socially responsible operations. In particular, our analyses show that it is possible to care about the supply chain partners' bottom line without sacrificing one's own profitability, and our models can be used as a tool to determine the commitment levels by evaluating the predicted outcome.

Keywords: Supply chain, mutual commitments, push, pull, socially responsible operations

Suggested Citation

Chen, Jiguang and Hu, Qiying and Song, Jing-Sheng Jeannette, Supply Chain Models with Mutual Commitments and Implications for Social Responsibility (September 28, 2016). DOI: 10.1111/poms.12674, Available at SSRN: https://ssrn.com/abstract=2719346 or http://dx.doi.org/10.2139/ssrn.2719346

Jiguang Chen (Contact Author)

School of Management, Xiamen University ( email )

Xiamen
China

Xiamen University ( email )

Xiamen, Fujian 361005
China

Qiying Hu

Fudan University - School of Management ( email )

No. 670, Guoshun Road
No.670 Guoshun Road
Shanghai, 200433
China

Jing-Sheng Jeannette Song

Duke University - Fuqua School of Business ( email )

100 Fuqua Drive
Duke University
Durham, NC 27708
United States

HOME PAGE: http://people.duke.edu/~jssong/

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