Decision Models in Supply Chain Management: A Social Responsibility Perspective

Recent events in emerging countries concerning supplier unethical practices and the resulting fatalities have stressed the need for social responsibility in supply chains. Rising consumer awareness regarding such events and their negative impact pose a challenge in supply management decisions for firms. This research integrates the risk of supplier irresponsibility and the impact of such events from the consumer perspective in developing supply management decision models for maximizing economic performance of firms. Two important issues in supply management: supplier selection and supplier development are addressed through stylized modeling approach.First, a supplier selection decision model is analyzed that will aid a firm to select between an ethical and unethical (risky) supplier considering the supplier learning for long-term contracts. Next, the decision model is modified to study supplier development decision considering penalty costs to select between three development decisions: direct/binding, non-binding, and third-party/intermediaries.Our results suggest that firms prefer long-term type of strategies in both supplier selection and development under high risk or impact or both. Contingent policies are only optimal for supplier selection decisions, while firms may use intermediate sourcing/development when the penalty costs are high and the cost of sourcing is low. However, it is also economically optimal for firms to choose unethical supplier or to not invest in supplier development when the risk and the impact are extremely low. This research contributes to the literature in operations and supply chain management by addressing social responsibility including the consumer perspective addressing the research gap in the field of operations and supply chain managemen