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Pushing Quality Improvement Along Supply Chains

Author

Listed:
  • Kaijie Zhu

    (Department of Industrial Engineering and Logistics Management, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong)

  • Rachel Q. Zhang

    (Department of Industrial Engineering and Logistics Management, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong)

  • Fugee Tsung

    (Department of Industrial Engineering and Logistics Management, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong)

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.

Suggested Citation

  • Kaijie Zhu & Rachel Q. Zhang & Fugee Tsung, 2007. "Pushing Quality Improvement Along Supply Chains," Management Science, INFORMS, vol. 53(3), pages 421-436, March.
    • Handle: RePEc:inm:ormnsc:v:53:y:2007:i:3:p:421-436
    DOI: 10.1287/mnsc.1060.0634
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    References listed on IDEAS

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