Pushing quality improvement along supply chains

Pushing quality improvement along supply chains

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Article ID: iaor20082497
Country: United States
Volume: 53
Issue: 3
Start Page Number: 421
End Page Number: 436
Publication Date: Mar 2007
Journal: Management Science
Authors: , ,
Keywords: quality & reliability
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.

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