Product Quality Management under Supply Chain Competition with Tracing and Recalls

48 Pages Posted: 15 Oct 2020 Last revised: 13 May 2021

See all articles by Lijian Lu

Lijian Lu

HKUST Business School - ISOM Department

Ruxian Wang

Johns Hopkins University - Carey Business School

Date Written: September 9, 2020

Abstract

Problem definition: Tracing the responsibility for defective products and sharing the related cost for product recalls resulting from quality issues are critical for product quality management in a supply chain setting. This paper studies the effects of product tracing and recalls in a supply chain with one retailer and multiple competing manufacturers, each of which may reduce product quality to save production cost, but at the risk of being caught.

Methodology/results:: We develop a game theoretical framework in a supply chain setting to study the product quality management under competition in the presence of tracing and recalls. We examine the impacts of the adoption of traceability-enabled technologies on product quality and welfare of the supply chain members. We also investigate the efficiency and fairness of traceability adoption that incentivizes manufacturers to improve product quality.
Our analysis shows that traceability always improves product quality, but it may either hurt or benefit some or even all supply chain members depending on the magnitude of the model primitives.

Managerial implications: These analytical results and managerial insights continue to hold in various cases with imperfect quality inspection, bilateral bargain in determining the responsibility for penalty cost, asymmetric manufacturers differing in the cost of quality improvement, and unobservable qualities, which further ensures the robustness of our findings. We observe that the adoption of traceability could lead to a supply chain coordination with a ``win-win" outcome for all parties under certain conditions, which further implies that these new technologies should be implemented in practice but with cautious.

Keywords: Quality Management, Quality Inspection,Traceability, Bilateral Bargain, Spillover, Supply Chain Competition

Suggested Citation

Lu, Lijian and Wang, Ruxian, Product Quality Management under Supply Chain Competition with Tracing and Recalls (September 9, 2020). Available at SSRN: https://ssrn.com/abstract=3616620 or http://dx.doi.org/10.2139/ssrn.3616620

Lijian Lu (Contact Author)

HKUST Business School - ISOM Department ( email )

Clear Water Bay
Kowloon
Hong Kong

Ruxian Wang

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

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