Monitoring Global Supply Chains

TL;DR: In this article, an analysis of nearly 17,000 supplier audits reveals that auditors report fewer violations when individual auditors have audited the factory before, when auditors are less experienced or less trained, when audit teams are all male, and when audits are paid for by the audited supplier.

Abstract: Research summary: Firms seeking to avoid reputational spillovers that can arise from dangerous, illegal, and unethical behavior at supply chain factories are increasingly relying on private social auditors to provide strategic information about suppliers' conduct. But little is known about what influences auditors' ability to identify and report problems. Our analysis of nearly 17,000 supplier audits reveals that auditors report fewer violations when individual auditors have audited the factory before, when audit teams are less experienced or less trained, when audit teams are all male, and when audits are paid for by the audited supplier. This first comprehensive and systematic analysis of supply chain monitoring identifies previously overlooked transaction costs and suggests strategies to develop governance structures to mitigate reputational risks by reducing information asymmetries in supply chains. Managerial summary: Firms reliant on supply chains to manufacture their goods risk reputational harm if the working conditions in those factories are revealed to be dangerous, illegal, or otherwise problematic. While firms are increasingly relying on private-sector “social auditors” to assess factory conditions, little has been known about the accuracy of those assessments. We analyzed nearly 17,000 code-of-conduct audits conducted at nearly 6,000 suppliers around the world. We found that audits yield fewer violations when the audit team has been at that particular supplier before, when audit teams are less experienced or less trained, when audit teams are all male, and when the audits were paid for by the supplier instead of by the buyer. We describe implications for firms relying on social auditors and for auditing firms. Copyright © 2015 John Wiley & Sons, Ltd.