Pushing Quality Improvement Along Supply Chains

Abstract

In this paper, we consider a buyer who designs a product and owns the brand, yet outsources the production to a supplier. Both the buyer and the supplier incur quality-related costs, e.g., costs of customer goodwill and future market share loss by the buyer and warranty-related costs shared by both the buyer and the supplier whenever a nonconforming item is sold to a customer. Therefore, both parties have an incentive to invest in quality-improvement efforts. This paper explores the roles of different parties in a supply chain in quality improvement. We show that the buyer's involvement can have a significant impact on the profits of both parties and of the supply chain as a whole, and he cannot cede the responsibility of quality improvement to the supplier in many cases. We also investigate how quality-improvement decisions interact with operational decisions such as the buyer's order quantity and the supplier's production lot size.quality cost, supply chain, quality improvement

Mitigating Supply Risk: Dual Sourcing or Process Improvement?

“…There is empirical evidence that direct involvement may be a more effective mechanism for improving reliability: in their study of supplier development in the U.S., Krause et al (2007) (p.540) found that "performance outcomes in quality, delivery and flexibility appear to depend more on direct involvement supplier development than cost performance outcomes." We note that Zhu et al (2007) studies a buying firm's quality improvement effort at its supplier. Their focus is to contrast supplier-and buyer-initiated quality improvement efforts in a single supplier and buyer setting with deterministic demand.…”

Analysis of Supply Chain under Different Subsidy Policies of the Government

“…Balachandran and Radhakrishnan (2005) considered a double moral hazard case in quality efforts and modeled the fixed share rate contract for allocating costs of internal failures [24]. Zhu et al (2007) investigated the roles of different channel members in a supply chain in quality improvement; they found that buyer involvement can significantly affect the profits of supply chain members [26]. Chao et al (2009) introduced two external quality cost sharing contracts to improve the quality of final product and to coordinate the supply chain [23].…”

Decision-making Evolution of Remanufacturing Supply Chain Considering Retailer's Sales Efforts

“…Jeuland and Shugan (1983) found that in a simple supply chain consisting of one supplier and one retailer, the price discount contract could correct the "double marginal" of the wholesale price contract in a deterministic demand scenario. In order to reduce the number of products returned by consumers, manufacturers must make a decision on whether to invest in product quality, so that retailers can improve product sales through their sales efforts (Zhu, Zhang and Tsung, 2007). Manufacturers develop effective incentive contracts, in order to encourage retailers to pay enough sales efforts (Chen, 2005), and retailers can get more pay by raising the level of effort to sell their products (Saha, 2013).…”