Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments October 29, 2015 erstellt
Description:
When suppliers (i.e., contract manufacturers) fail to comply with environmental or safety regulations, several non-governmental agencies and consumer activists put pressure on the buyers (customers) to take necessary actions to improve supplier compliance. Due to concerns over negative image and public boycotts, many buyers are conducting costly audits to improve supplier compliance. By considering a common practice that calls for independent audits (i.e., each buyer performs its own audit) as a benchmark, we examine the implications of two new audit mechanisms in this paper. The first mechanism is called the joint audit mechanism under which buyers conduct joint audits by sharing the joint audit cost and impose a collective penalty if the supplier fails their joint audit. The second mechanism is referred to as the shared audit mechanism under which each buyer conducts its own audit independently but shares its audit report with the other buyer. By sharing the audit reports, the buyers impose a collective penalty on the supplier if the supplier fails any one of the audits. Using a game-theoretic model with 2 buyers and 1 supplier, our analysis reveals that the joint audit mechanism is beneficial in two important ways. It can make the supplier increase its compliance level in equilibrium. Also, when the audit cost is below a certain threshold, the joint audit mechanism can increase the supply chain profit so that it is Pareto-improving. Moreover, we find that the shared audit mechanism is beneficial in a similar manner when the audit cost lies within a certain range. Ultimately, our analysis reveals that joint audits can be Pareto-improving when the buyer's audit cost is low, shared audits can be Pareto-improving when the buyer's cost is medium, and independent audits turn out to a practical mechanism when the buyer's audit cost is high