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The effect of unethical behavior and learning on strategic supplier selection

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  • Chen, Jen-Yi
  • Baddam, Swathi R.

Abstract

The unethical behavior of suppliers, such as the use of child labor or the use of unsafe processes, is becoming an increasingly common problem in many industries. Despite lower sourcing costs, such social irresponsibility can have a severe negative effect on firms because of growing awareness and punishment from consumers toward unethical practices. To study how ethical behavior of suppliers and supplier learning affect a firm׳s sourcing strategy, we analyze a buying firm׳s strategic sourcing decision on supplier selection between unethical and ethical suppliers by considering the risk likelihood and the impact to the firm of unethical events, and the supplier learning. We show that supplier learning matters and that the benefit of high learning rates may outweigh the concerns of unethical behavior or high ethical sourcing cost and so, long-term contracts are optimal. We also show that the firm may prefer a selection policy contingent on the realization of unethical events only when risk is low or impact is high. In addition, we show that a changing environment may cause the firm to take a more proactive sourcing strategy by adopting short-term switching policies.

Suggested Citation

  • Chen, Jen-Yi & Baddam, Swathi R., 2015. "The effect of unethical behavior and learning on strategic supplier selection," International Journal of Production Economics, Elsevier, vol. 167(C), pages 74-87.
  • Handle: RePEc:eee:proeco:v:167:y:2015:i:c:p:74-87
    DOI: 10.1016/j.ijpe.2015.05.003
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    References listed on IDEAS

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    2. Kumar, Patanjal & Baraiya, Rajendra & Das, Debashree & Jakhar, Suresh Kumar & Xu, Lei & Mangla, Sachin Kumar, 2021. "Social responsibility and cost-learning in dyadic supply chain coordination," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 156(C).
    3. Ali Salmasnia & Hamid Daliri & Ali Ghorbanian & Hadi Mokhtari, 2018. "A statistical analysis and simulation based approach to an uncertain supplier selection problem with discount option," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 9(6), pages 1250-1259, December.
    4. Seyed Amir Nasri & Behdad Ehsani & Seyed Javad Hosseininezhad & Nasser Safaie, 2023. "A sustainable supplier selection method using integrated Fuzzy DEMATEL–ANP–DEA approach (case study: Petroleum Industry)," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(11), pages 12791-12827, November.
    5. Dong, Binwei & Tang, Wansheng & Zhou, Chi & Ren, Yufei, 2021. "Is dual sourcing a better choice? The impact of reliability improvement and contract manufacturer encroachment," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 149(C).
    6. Brian W. Jacobs & Vinod R. Singhal, 2020. "Shareholder Value Effects of the Volkswagen Emissions Scandal on the Automotive Ecosystem," Production and Operations Management, Production and Operations Management Society, vol. 29(10), pages 2230-2251, October.
    7. Khan, Syed Abdul Rehman & Yu, Zhang & Sharif, Arshian, 2021. "No Silver Bullet for De-carbonization: Preparing for Tomorrow, Today," Resources Policy, Elsevier, vol. 71(C).
    8. Sheila Mendes Fernandes & Antonio Cezar Bornia, 2019. "Reporting on supply chain sustainability: Measurement using item response theory," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 26(1), pages 106-116, January.
    9. Seongtae Kim & Sangho Chae, 2022. "Shareholder Value Effects of Ethical Sourcing: Comparing Reactive and Proactive Initiatives," Journal of Business Ethics, Springer, vol. 179(3), pages 887-906, September.

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