Fairness in Supply Chain Transactions Yields Systemic Efficiencies, New Research Suggests

Fairness in supply chain transactions creates systemic efficiencies more often than not, says research by Julie Niederhoff, assistant professor of supply chain management at the Whitman School of Management, and her co-author, Xiaole “Sherri” Wu, an assistant professor in the Department of Management Science at Fudan University.

In their research, the authors use a mathematical model to consider how objectives, other than profit-maximization, influence the trade efficiency in a two-party supply chain with uncertain demand. Specifically, the authors contend, when the supplier or buyer of a good is concerned about the fairness of profits for the other party and themselves—for example, in Fair Trade agreements—the system develops prices and order quantities that are often more (but sometimes less) efficient (higher volumes and higher total profits) than would be predicted if all parties were strictly maximizing expected profits. The authors conclude that fairness concerns are most influential in a supply chain with high demand risk.

The paper, titled "Fairness in Selling to the Newsvendor," has been accepted for publication in the journal Production and Operations Management, published by the Production and Operations Management Society (POMS), an international professional organization representing the interests of POM professionals from around the world.