Tim Kraft, Visiting Assistant Professor of Operations Management
Karen Zheng, Associate Professor of Operations Management
Do consumers place a monetary value on supply-chain visibility? Are they willing to pay more for a product that is “socially responsible”?
A new study led by two professors at the MIT Sloan School of Management suggests that the answer is yes – at least to a point. Tim Kraft, visiting assistant professor of operations management, and Karen Zheng, associate professor of operations management, set up a “behavioral lab” that mimicked the dynamics of a real-world supply chain. It consisted of a three-player game, with participants playing the roles of consumer, seller and worker.
The experiment examined whether a consumer is willing to pay more for a given product if the seller provides visibility into its treatment of factory workers. The decisions of all players directly impacted their ultimate payments. So how much of a premium did the “consumers” agree to pay for products of the socially responsible “seller”? How did their actions affect the lot of the “worker”? And can a limited experiment of this type really mirror behavior in the real world?
Five years ago, the Rana Plaza factory in Bangladesh collapsed killing more than 1,100 workers and revealing the horrific working conditions that garment workers endure across the developing world. Still, to this day apparel makers are trying to get a grasp on the social responsibility practices being used in their supply chains.
MIT Sloan Associate Professor, Yanchong (Karen) Zheng
To create a transparent supply chain requires a company to both learn what is occurring in their supply chains and disclose relevant information to consumers. Gaining supply chain visibility is the often-overlooked aspect of supply chain transparency. It is a complicated and time-consuming endeavor—and the benefits to a company’s bottom line are not always entirely clear. Do customers really care? And even if they do care, are they willing to reward a company for its efforts?
According to our research, the answers are yes and yes. A majority of customers value insight into a company’s supply chain—and some are even prepared to pay a premium for greater visibility.
A number of forward-thinking companies such as Nike, Levi’s and Patagonia, for instance, have long published their lists of suppliers, and have also put mechanisms in place to ensure their products are manufactured in a responsible manner. For them, supply chain visibility is an absolute must: a social good that safeguards human rights, but also provides information that customers deserve to know. Read More »
Trust is important to our relationships with friends, family, and acquaintances. Less understood, though, is the role trust can play in business relationships. When businesses deal with each other, their first impulse often is to summon their lawyers. But I have found in my research that there are many situations in which trust can be an effective replacement for costly and time-consuming contract negotiations.
To understand the role of trust in business, I and two colleagues, Ozalp Ozer of the University of Texas at Dallas and Kay-Yut Chen of Hewlett-Packard Laboratories, conducted a series of computer laboratory experiments that simulated one of the most vexing problems in supply chain management: The tendency for manufacturers to issue overly optimistic forecasts.