Pushing Quality Improvement Along Supply Chains
Kaijie Zhu, Rachel Q. Zhang, Fugee Tsung
Management Science · 2007 · Volume 53 · Issue 3
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.
Keywords
quality cost, supply chain, quality improvement
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