Combating Excessive Overtime in Global Supply Chains

Abstract

Workers in developing economies may be forced by suppliers to work excessive overtime, resulting in severe mental and physical issues for the workers and possible significant damage to the brand of multinational enterprises (MNEs) if exposed in public. In this paper, we develop a game-theoretic model of a dyadic supply chain to analyze a manufacturer's strategies to combat these excessive overtime issues of a supplier, including a stick strategy of auditing the supplier's practice (i.e., the auditing strategy) and a carrot supplier-development strategy of cross-training the supplier's workers to increase their versatility (i.e., the cross-training strategy). When auditing is the only viable strategy, it can effectively mitigate the supplier's violation behavior only when the auditing accuracy is significant. The manufacturer audits the supplier when the auditing cost is smaller than a threshold. In the scenario where both cross-training and auditing are viable, when cross-training is less effective, interestingly, cross-training becomes a complement for auditing, in contrast to the naive common belief that the strategies combating excessive overtime are always substitutes. That is, cross-training increases the manufacturer's auditing incentive. When cross-training is more effective, it is indeed a substitute for auditing. We also find that cross-training may backfire and actually increase the degree of excessive overtime when it is more effective because of the manufacturer's decreased incentive to audit. Finally, cross-training may lead to a win-win situation and Pareto improve the manufacturer's and the supplier's profits.

Keywords: social responsibility, excessive overtime, auditing, cross-training, game theory

JEL Classification: D24, D42, D63