Volume 54, Number 4, July-August 2020
|Page(s)||1133 - 1160|
|Published online||12 June 2020|
Strategic sourcing under recall loss sharing and product quality investment
Institute of Systems Engineering, Tianjin University, 300072 Tianjin, PR China
2 School of Management, Tianjin University of Technology, 300384 Tianjin, PR China
* Corresponding author: firstname.lastname@example.org
Accepted: 7 May 2019
Product recall has been a widespread practical operation risk in the production outsourcing. To remit even avoid product recall risk, this paper considers a two-echelon supply chain where the original equipment manufacturer (OEM) orders a critical component from one or two contract manufacturers (CMs) and uses it to produce finished product with potential quality defect. The CMs can decide investment level to reduce defect possibility and share recall loss with the OEM once product recall is implemented. When the recall loss sharing rate is fixed, the OEM may adopt the single sourcing strategy or the dual sourcing strategy which depends on the recall loss sharing rate. Moreover, if the sharing rate is relatively small, the single sourcing strategy is an optimal choice for the OEM. However, when the recall loss sharing rate is determined by the OEM, she prefers to adopt the dual sourcing strategy. Meanwhile, an increase of the recall loss sharing rate may not force the CM to improve product quality. By the numerical analysis, if the marginal recall loss is large or the wholesale price is relatively small, the OEM and the CMs can reach a win-win scenario. Finally, we examine an extension in which the CMs have pricing ability on wholesale price, and the result shows that the OEM can not obtain a cost-reduction benefit under the dual sourcing strategy.
Mathematics Subject Classification: 91A35 / 91A80 / 91B06
Key words: Recall loss sharing / quality investment / dual sourcing / contract manufacturing / game theory
© EDP Sciences, ROADEF, SMAI 2020
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