Impact of Supply Chain Transparency on Sustainability Under NGO Scrutiny

Abstract

Companies are increasingly held accountable for social and environmental sustainability violations committed by their contract suppliers. Government regulation, buyers developing codes of conduct and increasing auditing effort, and additional independent auditing by Non-Governmental Organizations (NGOs) are all important tools in addressing supply chain sustainability issues. In this paper we study the potential use of supply chain transparency as another effective tool. In particular, we study whether the buyer should reveal her supplier list, knowing that revealed suppliers could face a different level of NGO scrutiny than the unrevealed ones. Using an analytical model we incorporate the strategic interactions among a buyer, her suppliers, and the independent NGOs. We are able to characterize their equilibrium actions and find conditions under which the buyer finds it beneficial to reveal her supplier list, and discover different reasons for the buyer to do so. An important finding is that supply chain transparency -- either the buyer's voluntary revelation of her supplier list, or government's mandate for the buyer to disclose violations -- can lead to better supply chain sustainability, but we also discuss the possibility that more supply chain transparency may lead to lower supply chain sustainability. We offer conditions and intuitive explanations for such findings.