Managing Suppliers for Assembly Systems with Corporate Social Responsibility Considerations

This paper examines how a manufacturer in an assembly system should exert efforts to effectively manage its component supply base with social responsibility considerations. We develop a game-theoretic model where a manufacturer sources two components from two suppliers to assemble a final product. The suppliers have different levels of social responsibility and may violate social and environmental standards. Consumers care about whether the product is produced in a responsible way and may boycott the product if a violation occurs within the component suppliers. Among other results, we show that consumers' punishment for an irresponsible product always hurts the manufacturer in a centralized structure, but may benefit the manufacturer in a decentralized system. Moreover, when managing two component suppliers simultaneously, the manufacturer's preferred responsibility levels are identical under both centralized and decentralized assembly systems. However, when improving only one component supplier given that the other one is fixed, the decentralized manufacturer may prefer a higher or lower responsibility level, compared to the centralized case. Our results imply that consumer initiatives (e.g., boycotts) may not necessarily induce more socially responsible behavior, especially in a decentralized assembly system. Moreover, operating in a decentralized environment may not necessarily reduce the incentives to engage in responsible behavior