Control versus Delegation in Responsible Sourcing

Abstract

In this study, we consider a three-tier supply chain consisting of a buying firm, a contract manufacturer, and component suppliers, where responsibility violations may occur at the supplier level. The buyer outsources final product assembly to the manufacturer, who relies on a key component from a supplier. The component supplier market comprises risk-free suppliers from a high-cost region and risky suppliers from a low-cost region. The buyer and the manufacturer possess asymmetric information regarding the responsibility performance of risky suppliers. The central question we address is whether the buyer should control component procurement by directly sourcing from a supplier or delegate this task to the manufacturer. We find that the buyer prefers control when her cost of publicized non-compliance is high and delegation when it is low. When this cost is moderate, both strategies can be optimal, and delegation does not necessarily yield higher profits at the expense of increased responsibility risk. Compared with a benchmark setting of symmetric information, we show that the manufacturer’s information advantage over the buyer may either benefit or harm the buyer, and may even backfire on the manufacturer himself. It can also either increase or reduce overall supply chain responsibility risk. Contrary to common expectations, our results reveal that greater public scrutiny or heightened consumer social consciousness, which are often seen as drivers of responsible sourcing, can paradoxically lead to a decline in supply chain responsibility performance.

Date of Award	2025
Original language	English
Awarding Institution	The Hong Kong University of Science and Technology
Supervisor	Albert Yiu Cheung HA (Supervisor)