Supplier Evasion of a Buyer's Audit: Implications for Motivating Supplier Social and Environmental Responsibility

October 24, 2014-2:00 pm to 4:30 pm

This public lecture is part of a joint colloquium sponsored by the Long Institute and the Operations and Decision Technologies Group at the Paul Merage School of Business.

Recently, some prominent buyers’ brands have been damaged by a supplier’ deadly factory fire or release of toxic chemicals. This paper provides guidance to buyers as to how to motivate their suppliers to exert more care to prevent such harm to workers and the environment. Obvious approaches (increasing auditing, publicizing negative audit reports, providing a loan to the supplier) can be counterproductive. Less obvious approaches (squeezing the supplier's margin by reducing the price paid to the supplier or increasing wages for workers, pre-commitment to a low level of auditing) might better motivate supplier responsibility. Even if the buyer ensures that the supplier's facility is safe, e.g., through direct investment in the facility, the supplier may outsource some production of the buyer's order to unauthorized subcontractors, exposing the buyer to risk of brand damage. The results in the paper also apply to mitigation of unauthorized subcontracting. (Joint with Erica Plambeck.)

Terry Taylor is the Milton W. Terrill Associate Professor at U.C. Berkeley’s Haas School of Business. Prior to his position at Berkeley, Terry was a professor at Columbia University’s Graduate School of Business and a visiting professor at Dartmouth’s Tuck School of Business. His current research focuses on social responsibility in operations. He is an associate editor for Management Science, Manufacturing and Service Operations Management, Operations Research, and Production and Operations Management.

Location: Paul Merage School of Business, SB2-223 (Map)