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Is dishonesty the best policy? Supplier behaviour in a multi-tier supply chain

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  • DeYong, Gregory D.
  • Pun, Hubert

Abstract

In this paper, we examine suppliers׳ dishonest behaviour in a multi-tiered supply chain. In particular, we consider a buyer purchasing a product consisting of two components from a tier-one supplier. The tier-one supplier produces one component in-house and purchases the other component from a tier-two supplier. The suppliers decide their investment in production technology, but the production technologies are imperfect, so the components may be defective. In the unfortunate situation where a defective component is produced, the seller can choose to rework the component to an acceptable standard (honesty) or may ship it without reworking (dishonesty). In turn, the buyer has the option of accepting the product “as is” or may conduct an inspection to identify defective components before accepting the delivery. Our results show that the buyer can benefit from either a high rework cost or when the suppliers׳ negative consequences from cheating are low. We also identify strategy shift-points where the changes in the players׳ tactics lead to rapidly changing outcomes. Finally, we examine the supply chain inefficiencies introduced by the dishonest behaviour of the suppliers.

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  • DeYong, Gregory D. & Pun, Hubert, 2015. "Is dishonesty the best policy? Supplier behaviour in a multi-tier supply chain," International Journal of Production Economics, Elsevier, vol. 170(PA), pages 1-13.
    • Handle: RePEc:eee:proeco:v:170:y:2015:i:pa:p:1-13
    DOI: 10.1016/j.ijpe.2015.09.006
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    References listed on IDEAS

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    4. Sauer, Philipp C. & Seuring, Stefan, 2019. "Extending the reach of multi-tier sustainable supply chain management – Insights from mineral supply chains," International Journal of Production Economics, Elsevier, vol. 217(C), pages 31-43.
    5. Pun, Hubert & Ghamat, Salar, 2016. "The value of partnership under competition: When competitors may be R&D joint-venture and supply-chain partners for a critical component," International Journal of Production Economics, Elsevier, vol. 177(C), pages 1-11.

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