Quality Management in a Three-Level Supply Chain: The Role of Methods and Costs

While various techniques for improving product quality have been proposed, the supply chain network is often taken for granted. This paper considers quality control within a three-level supply chain and provides interesting findings that differ from the existing literature. Results suggest a curvilinear relationship between quality improvement efforts in the supply chain and brand owner profit: maximum efforts by the supplier and manufacturer do not guarantee optimal profit for the brand owner. Furthermore, two quality control methods - appraisal and certification - are examined. The quality control methods are found to affect both finished product quality and brand owner profit, but their impacts are moderated by the external failure cost of finished products. Results also suggest that no one particular quality control method dominates in terms of improving finished product quality or raising firm profitability. The optimal quality control method depends on the external product failure cost and other contextual factors in the supply chain.