IDEAS home Printed from https://ideas.repec.org/a/taf/uiiexx/v46y2014i4p313-329.html
   My bibliography  Save this article

Strategic outsourcing decisions for manufacturers competing on product quality

Author

Listed:
  • Tiaojun Xiao
  • Yusen Xia
  • G. Zhang

Abstract

This article examines strategic outsourcing decisions for two competing manufacturers whose key components have quality improvement (QI) opportunities. We consider the effects of vertical and horizontal product differentiation on demand. In deriving the Subgame Perfect Nash Equilibria (SPNE), it is shown that either a symmetric outsourcing strategy (i.e., both manufacturers outsource) or an asymmetric sourcing strategy profile (i.e., manufacturers use different sourcing strategies) can be an SPNE. Insights are provided into how sourcing strategies are affected by the factors such as fixed setup cost, unit production cost, QI efficiency, and horizontal and vertical differentiations. It is found that larger horizontal differentiation expands the range over which symmetric outsourcing is an equilibrium. In addition, the outsourcing manufacturer may provide a higher QI level, produce a higher quantity, and offer a lower retail price than the insourcing one in the asymmetric sourcing setting. On the other hand, the insourcing manufacturer should pay more attention to the effect of the rival's sourcing strategy on the QI level than the outsourcing one. Finally, it is shown that all players have an incentive to determine sourcing partner relationships before the wholesale price contract is offered.

Suggested Citation

  • Tiaojun Xiao & Yusen Xia & G. Zhang, 2014. "Strategic outsourcing decisions for manufacturers competing on product quality," IISE Transactions, Taylor & Francis Journals, vol. 46(4), pages 313-329.
    • Handle: RePEc:taf:uiiexx:v:46:y:2014:i:4:p:313-329
    DOI: 10.1080/0740817X.2012.761368
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/0740817X.2012.761368
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/0740817X.2012.761368?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Xinjian Wu & Chao Yu & Suyong Zhang, 2022. "Quality level and outsourcing strategies in a three-tier low-carbon supply chain [Delegation vs. control in low-carbon supply chain procurement under competition]," International Journal of Low-Carbon Technologies, Oxford University Press, vol. 17, pages 980-990.
    2. Li, Wei & Chen, Jing, 2020. "Manufacturer’s vertical integration strategies in a three-tier supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 135(C).
    3. Chen, Jingxian & Liang, Liang & Yang, Feng, 2015. "Cooperative quality investment in outsourcing," International Journal of Production Economics, Elsevier, vol. 162(C), pages 174-191.
    4. Mandal, Prasenjit & Jain, Tarun, 2021. "Partial outsourcing from a rival: Quality decision under product differentiation and information asymmetry," European Journal of Operational Research, Elsevier, vol. 292(3), pages 886-908.
    5. Anna Nagurney & Dong Li, 2015. "A supply chain network game theory model with product differentiation, outsourcing of production and distribution, and quality and price competition," Annals of Operations Research, Springer, vol. 226(1), pages 479-503, March.
    6. Zhao, Ming & Dong, Ciwei & Cheng, T.C.E., 2018. "Quality disclosure strategies for small business enterprises in a competitive marketplace," European Journal of Operational Research, Elsevier, vol. 270(1), pages 218-229.
    7. Wu, Xiangxiang & Zha, Yong & Yu, Yugang, 2022. "The developer’s sourcing strategy in the presence of a competing manufacturer and consumers’ two-dimensional differentiated preferences," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 158(C).
    8. Kebing Chen & Tiaojun Xiao, 2015. "Production planning and backup sourcing strategy of a buyer-dominant supply chain with random yield and demand," International Journal of Systems Science, Taylor & Francis Journals, vol. 46(15), pages 2799-2817, November.
    9. Prasenjit Mandal & Tarun Jain & Abhishek Chakraborty, 2021. "Quality collaboration contracts under product pricing strategies," Annals of Operations Research, Springer, vol. 302(1), pages 231-264, July.
    10. Pournader, Mehrdokht & Kach, Andrew & Fahimnia, Behnam & Sarkis, Joseph, 2019. "Outsourcing performance quality assessment using data envelopment analytics," International Journal of Production Economics, Elsevier, vol. 207(C), pages 173-182.
    11. Li, Wei & Zhao, Xuan & Chen, Jing, 2023. "Co-opetition or decentralization? A study of manufacturers’ sourcing and distribution strategies," European Journal of Operational Research, Elsevier, vol. 311(3), pages 867-886.
    12. Chen, Kebing & Xiao, Tiaojun, 2015. "Outsourcing strategy and production disruption of supply chain with demand and capacity allocation uncertainties," International Journal of Production Economics, Elsevier, vol. 170(PA), pages 243-257.
    13. Li, Wei & Zhao, Xuan, 2022. "Competition or coopetition? Equilibrium analysis in the presence of process improvement," European Journal of Operational Research, Elsevier, vol. 297(1), pages 180-202.
    14. Li, Dan & Chen, Jing & Liao, Yi, 2021. "Outsourcing strategy in the presence of the customer returns," International Journal of Production Economics, Elsevier, vol. 240(C).
    15. Garvan Whelan & Paul Hanly & Vincent O’Connell & Oldřich Ludwig Dittrich & Naser Abu Ghazalah, 2021. "Impact on Firm Liquidity Arising from Outsourcing Decisions as Evidenced by Off-Balance-Sheet Disclosures," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 27(1), pages 17-27, February.
    16. Chen, Jingxian & Liang, Liang & Yao, Dong-qing, 2019. "Factory encroachment and channel selection in an outsourced supply chain," International Journal of Production Economics, Elsevier, vol. 215(C), pages 73-83.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:uiiexx:v:46:y:2014:i:4:p:313-329. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/uiie .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.