IDEAS home Printed from https://ideas.repec.org/a/inm/ormsom/v25y2023i6p2314-2332.html

Effect of Guided Delegation and Information Proximity on Multitier Responsible Sourcing

Author

Listed:
  • Sammi Y. Tang

    (Herbert Business School, University of Miami, Coral Gables, Florida 33146)

  • Jing-Sheng Song

    (Fuqua School of Business, Duke University, Durham, North Carolina 27708)

Abstract

Problem definition : Guided delegation, a practice in which companies provide guidelines when delegating supplier management to tier 1 firms, is a common practice in managing complex supply chains. We study the benefits and risks of this approach in a three-tier supply chain setting consisting of a buying firm, a tier 1 contract manufacturer, and tier 2 suppliers, where responsibility risk stems from the tier 2 suppliers. We analyze the buyer’s profit and the supply chain’s responsibility risk under a guided-delegation model, in which the buyer specifies an authorized tier 2 supplier for the tier 1 manufacturer as a guideline and may audit the tier 1 firm for compliance. We compare this model with a full-delegation model, in which the buyer fully delegates tier 2 supplier selection to the tier 1 firm. Methodology/results : We formulate a Stackelberg game for the buyer’s contract design problem. We show that guided delegation does not always yield its expected results of lower supply chain risk and greater buyer profit. In instances where compliance auditing is financially more attractive to the buyer than paying a premium for tier 1’s responsible sourcing, guided delegation can result in higher profit but increased risk because compliance auditing cannot completely eliminate the risk. Additionally, when tier 1 anticipates buyer audits and demands higher wholesale prices to offset potential penalties, guided delegation may lead to decreased risk but lower profit for the buyer. Our analysis shows that delegating audit responsibilities to tier 1 often does not improve the buyer’s profit, and in situations where it does, it invariably raises the supply chain risk. Managerial implications : Our research identifies the potential downsides of guided delegation, offering insight for external stakeholders on where to focus efforts to avoid these pitfalls. It suggests that the intended benefits of guided delegation can only be realized when paired with compliance auditing.

Suggested Citation

  • Sammi Y. Tang & Jing-Sheng Song, 2023. "Effect of Guided Delegation and Information Proximity on Multitier Responsible Sourcing," Manufacturing & Service Operations Management, INFORMS, vol. 25(6), pages 2314-2332, November.
    • Handle: RePEc:inm:ormsom:v:25:y:2023:i:6:p:2314-2332
    DOI: 10.1287/msom.2020.0446
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/msom.2020.0446
    Download Restriction: no
    File URL: https://libkey.io/10.1287/msom.2020.0446?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Guo, Pengfei & Song, Jing-Sheng & Wang, Yulan, 2010. "Outsourcing structures and information flow in a three-tier supply chain," International Journal of Production Economics, Elsevier, vol. 128(1), pages 175-187, November.
    2. Tim Kraft & León Valdés & Yanchong Zheng, 2020. "Motivating Supplier Social Responsibility Under Incomplete Visibility," Manufacturing & Service Operations Management, INFORMS, vol. 22(6), pages 1268-1286, November.
    3. Özgen Karaer & Tim Kraft & Pınar Yalçın, 2020. "Supplier development in a multi-tier supply chain," IISE Transactions, Taylor & Francis Journals, vol. 52(4), pages 464-477, April.
    4. Mariya Bondareva & Edieal Pinker, 2019. "Dynamic Relational Contracts for Quality Enforcement in Supply Chains," Management Science, INFORMS, vol. 65(3), pages 1305-1321, March.
    5. Fang Liu & Tracy R. Lewis & Jing-Sheng Song & Nataliya Kuribko, 2019. "Long-Term Partnership for Achieving Efficient Capacity Allocation," Operations Research, INFORMS, vol. 67(4), pages 984-1001, July.
    6. Volodymyr Babich & Christopher S. Tang, 2012. "Managing Opportunistic Supplier Product Adulteration: Deferred Payments, Inspection, and Combined Mechanisms," Manufacturing & Service Operations Management, INFORMS, vol. 14(2), pages 301-314, April.
    7. Felipe Caro & Prashant Chintapalli & Kumar Rajaram & Chris S. Tang, 2018. "Improving Supplier Compliance Through Joint and Shared Audits with Collective Penalty," Manufacturing & Service Operations Management, INFORMS, vol. 20(2), pages 363-380, May.
    8. Vishal Agrawal & Deishin Lee, 2019. "The Effect of Sourcing Policies on Suppliers’ Sustainable Practices," Production and Operations Management, Production and Operations Management Society, vol. 28(4), pages 767-787, April.
    9. Stanley Baiman & Paul E. Fischer & Madhav V. Rajan, 2000. "Information, Contracting, and Quality Costs," Management Science, INFORMS, vol. 46(6), pages 776-789, June.
    10. Ruixue Guo & Hau L. Lee & Robert Swinney, 2016. "Responsible Sourcing in Supply Chains," Management Science, INFORMS, vol. 62(9), pages 2722-2744, September.
    11. Sang-Hyun Kim, 2015. "Time to Come Clean? Disclosure and Inspection Policies for Green Production," Operations Research, INFORMS, vol. 63(1), pages 1-20, February.
    12. Jiguang Chen & Qiying Hu & Jing-Sheng Song, 2017. "Supply Chain Models with Mutual Commitments and Implications for Social Responsibility," Production and Operations Management, Production and Operations Management Society, vol. 26(7), pages 1268-1283, July.
    13. Jiayu Chen & Anyan Qi & Milind Dawande, 2020. "Supplier Centrality and Auditing Priority in Socially Responsible Supply Chains," Manufacturing & Service Operations Management, INFORMS, vol. 22(6), pages 1199-1214, November.
    14. Dilip Mookherjee & Masatoshi Tsumagari, 2004. "The Organization of Supplier Networks: Effects of Delegation and Intermediation," Econometrica, Econometric Society, vol. 72(4), pages 1179-1219, July.
    15. Jason Amaral & Corey A. Billington & Andy A. Tsay, 2006. "Safeguarding the Promise of Production Outsourcing," Interfaces, INFORMS, vol. 36(3), pages 220-233, June.
    16. Iny Hwang & Suresh Radhakrishnan & Lixin (Nancy) Su, 2006. "Vendor Certification and Appraisal: Implications for Supplier Quality," Management Science, INFORMS, vol. 52(10), pages 1472-1482, October.
    17. Soo-Haeng Cho & Xin Fang & Sridhar Tayur & Ying Xu, 2019. "Combating Child Labor: Incentives and Information Disclosure in Global Supply Chains," Manufacturing & Service Operations Management, INFORMS, vol. 21(3), pages 692-711, July.
    18. Enis Kayis & Feryal Erhun & Erica L. Plambeck, 2013. "Delegation vs. Control of Component Procurement Under Asymmetric Cost Information and Simple Contracts," Manufacturing & Service Operations Management, INFORMS, vol. 15(1), pages 45-56, April.
    19. Adem Orsdemir & Bin Hu & Vinayak Deshpande, 2019. "Ensuring Corporate Social and Environmental Responsibility Through Vertical Integration and Horizontal Sourcing," Manufacturing & Service Operations Management, INFORMS, vol. 21(2), pages 417-434, April.
    20. Shi Chen & Qinqin Zhang & Yong‐Pin Zhou, 2019. "Impact of Supply Chain Transparency on Sustainability under NGO Scrutiny," Production and Operations Management, Production and Operations Management Society, vol. 28(12), pages 3002-3022, December.
    21. Li Chen & Hau L. Lee, 2017. "Sourcing Under Supplier Responsibility Risk: The Effects of Certification, Audit, and Contingency Payment," Management Science, INFORMS, vol. 63(9), pages 2795-2812, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tim Kraft & Junhao Vincent Yu & Yanchong Zheng, 2023. "Supply Chain Transparency and Sustainability," Foundations and Trends(R) in Technology, Information and Operations Management, now publishers, vol. 17(2), pages 82-154, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lu Huang & Jing-Sheng Song & Robert Swinney, 2022. "Managing Social Responsibility in Multitier Supply Chains," Manufacturing & Service Operations Management, INFORMS, vol. 24(6), pages 2843-2862, November.
    2. Gao, Ruoxin & Yao, Shiqing & Yang, Ruina, 2024. "Responsible audit and consumer awareness under collusion risk," European Journal of Operational Research, Elsevier, vol. 314(2), pages 466-476.
    3. Qi Feng & Chengzhang Li & Mengshi Lu & J. George Shanthikumar, 2022. "Implementing Environmental and Social Responsibility Programs in Supply Networks Through Multiunit Bilateral Negotiation," Management Science, INFORMS, vol. 68(4), pages 2579-2599, April.
    4. Tarkan Tan & M. Hakan Akyüz & Bengisu Urlu & Santiago Ruiz, 2024. "Stop Auditing and Start to CARE: Paradigm Shift in Assessing and Improving Supplier Sustainability," Interfaces, INFORMS, vol. 54(3), pages 241-263, May.
    5. Xin Fang & Soo-Haeng Cho, 2020. "Cooperative Approaches to Managing Social Responsibility in a Market with Externalities," Manufacturing & Service Operations Management, INFORMS, vol. 22(6), pages 1215-1233, November.
    6. Xiaole Chen & Vernon N. Hsu & Guoming Lai & Yang Li, 2023. "Supply chain short‐term financing for responsible production at small and medium‐sized enterprises," Production and Operations Management, Production and Operations Management Society, vol. 32(12), pages 4154-4171, December.
    7. Jiayu Chen & Anyan Qi & Milind Dawande, 2020. "Supplier Centrality and Auditing Priority in Socially Responsible Supply Chains," Manufacturing & Service Operations Management, INFORMS, vol. 22(6), pages 1199-1214, November.
    8. Tim Kraft & León Valdés & Yanchong Zheng, 2020. "Motivating Supplier Social Responsibility Under Incomplete Visibility," Manufacturing & Service Operations Management, INFORMS, vol. 22(6), pages 1268-1286, November.
    9. Tao Lu & Brian Tomlin, 2022. "Sourcing from a Self-Reporting Supplier: Strategic Communication of Social Responsibility in a Supply Chain," Manufacturing & Service Operations Management, INFORMS, vol. 24(2), pages 902-920, March.
    10. Lingxiu Dong & Iva Rashkova & Duo Shi, 2022. "Food Safety Audits in Developing Economies: Decentralization vs. Centralization," Manufacturing & Service Operations Management, INFORMS, vol. 24(6), pages 2863-2881, November.
    11. Han Zhang & Goker Aydin & Rodney P. Parker, 2022. "Social Responsibility Auditing in Supply Chain Networks," Management Science, INFORMS, vol. 68(2), pages 1058-1077, February.
    12. Basak Kalkanci & Erica L. Plambeck, 2020. "Reveal the Supplier List? A Trade-off in Capacity vs. Responsibility," Manufacturing & Service Operations Management, INFORMS, vol. 22(6), pages 1251-1267, November.
    13. Albert Y. Ha & Weixin Shang & Yunjie Wang, 2023. "Supplier Audit Information Sharing and Responsible Sourcing," Management Science, INFORMS, vol. 69(1), pages 308-324, January.
    14. Keskin, Burcu B. & Griffin, Emily C. & Prell, Jonathan O. & Dilkina, Bistra & Ferber, Aaron & MacDonald, John & Hilend, Rowan & Griffis, Stanley & Gore, Meredith L., 2023. "Quantitative Investigation of Wildlife Trafficking Supply Chains: A Review," Omega, Elsevier, vol. 115(C).
    15. Vibhuti Dhingra & Harish Krishnan, 2021. "Managing Reputation Risk in Supply Chains: The Role of Risk Sharing Under Limited Liability," Management Science, INFORMS, vol. 67(8), pages 4845-4862, August.
    16. Chen, Qi & Duan, Yongrui, 2023. "Impact of information disclosure on global supply chain greenwashing: Is more information transparency always better?," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 178(C).
    17. Nur Sunar & Jayashankar M. Swaminathan, 2022. "Socially relevant and inclusive operations management," Production and Operations Management, Production and Operations Management Society, vol. 31(12), pages 4379-4392, December.
    18. Ma, Xin & Talluri, Srinivas & Ferguson, Mark & Tiwari, Sunil, 2022. "Strategic production and responsible sourcing decisions under an emissions trading scheme," European Journal of Operational Research, Elsevier, vol. 303(3), pages 1429-1443.
    19. Junjian Wu & Henry Xu, 2021. "Information Leakage and Financing Decisions in a Supply Chain with Corporate Social Responsibility and Supply Uncertainty," Sustainability, MDPI, vol. 13(21), pages 1-22, October.
    20. Li Chen & Shiqing Yao & Kaijie Zhu, 2020. "Responsible Sourcing Under Supplier-Auditor Collusion," Manufacturing & Service Operations Management, INFORMS, vol. 22(6), pages 1234-1250, November.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormsom:v:25:y:2023:i:6:p:2314-2332. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.