Interactions of traceability and reliability optimization in a competitive supply chain with product recall

Traceability which is a tracking capability used to identify the sources of many quality problems, such as product recalls, has become an important feature of supply chains. In this paper, we develop a game-theoretical model to study the interactions of supply chain traceability and product reliability optimization in a competitive supply chain with product recall. Specifically, we consider two competing manufacturers that may choose to invest in traceability on the basis of product reliability optimization, by using the Non-track, Mono-track, and Duo-track models, and then sell products through two competing retailers to customers who are concerned with the differentiation of the product, the channel, and the traceability. We derive the optimal traceability and product reliability strategies under the three tracking models with endogenous pricing, and demonstrate the equilibrium tracking strategies for two competing manufacturers. The results show that traceability can fully substitute product reliability when the traceability investment cost coefficient is low but it may improve product reliability when the cost coefficient is high and the reliability investment cost coefficient is low. Investing in traceability will always benefit the manufacturer itself, and may benefit the competitor who does not track when the traceability investment cost coefficient is large enough. Interestingly, we find that the profit of the manufacturer who invests in traceability is increasing in the traceability competition intensity.