Design of Traceability Systems for Product Recall

41 Pages Posted: 4 Jun 2010 Last revised: 1 Sep 2015

See all articles by Hongyan Dai

Hongyan Dai

Central University of Finance and Economics

Mitchell M. Tseng

Hong Kong University of Science & Technology (HKUST)

Paul Zipkin

Duke University - Fuqua School of Business

Date Written: November 9, 2011

Abstract

A product recall is very expensive and a poorly executed recall can be devastating to a company’s reputation. It is therefore important to improve the traceability for supply chains to address potential recalls. This paper studies the recall dynamics in a two-stage supply chain with a manufacturer and two suppliers. It is shown that the suppliers would opt-out in improving traceability due to misalignment of incentives, leading to diminishing traceability of the whole supply chain and high product recall liabilities for the manufacturer. To address this problem, this research designs an interest-sharing mechanism by which the recall liability reduction of the manufacturer due to improved traceability can be shared with the suppliers to induce traceability improvement effort. Results show that the interest-sharing mechanism improves not only the economic benefit, but also the traceability for each party. We also provide a systematic framework to choose the design parameters, including the degree of accuracy and level of coding, for the supply chain to realize such benefits.

Keywords: product recall, traceability system design, RFID

JEL Classification: J28, O14

Suggested Citation

Dai, Hongyan and Tseng, Mitchell M. and Zipkin, Paul, Design of Traceability Systems for Product Recall (November 9, 2011). Available at SSRN: https://ssrn.com/abstract=1619172 or http://dx.doi.org/10.2139/ssrn.1619172

Hongyan Dai (Contact Author)

Central University of Finance and Economics ( email )

No 39. Xueyuan South Road
Haidai District
Beijing, 100081
China

Mitchell M. Tseng

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

Paul Zipkin

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

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