Trust and Information Sharing in Supply Chains

Drawing on empirical and experimental research into the composition and development of trust, we construct a multi-period model to examine the role of trust in a supply chain. We specifically focus on trust building in the context of a wholesale salesperson who acts as a representative of a manufacturer and shares demand forecast information with a retailer. The actions of the salesperson affect both her immediate economic gain and her future credibility as determined by retailer trust. We consider three types of salespersons: (i) a “benevolent” salesperson, whose objective is to maximize retailer’s profit, (ii) a “self-serving” salesperson, whose objective is to maximize her own quantity-based incentive pay and (iii) an “honest” salesperson who always reports her true forecast. As we would expect, we find that a benevolent salesperson attains higher levels of retailer trust than a self-serving salesperson. However, neither the benevolent nor the self-serving salesperson is completely honest. A benevolent salesperson tells occasional “white lies” (e.g., moderating an extreme forecast) to preserve trust while a self-serving salesperson tells “manipulative lies” (e.g., inflating a forecast to drive up order quantities). We show that increasing the length of the salesperson-retailer relationship tends to induce honest behavior because of the need for the salesperson to retain enough trust to be effective. Consequently, even a self-serving salesperson can enable the retailer, as well as the manufacturer, to increase profits.