Quality improvement incentive strategies in a supply chain

Abstract

This paper investigates several incentive mechanisms for collaborative product quality improvement in a buyer-driven supply chain, and the impacts of those mechanisms on supply chain performance. The buyer, the Stackelberg leader, determines the sales price of a product while the supplier is responsible for production and product quality determination. We develop analytical models incorporating two reward schemes to better understand how the buyer can facilitate the supplier's quality improvement efforts. We offer managerial insights and practical guidelines for implementing quality management in the supply chain, derived from both an analytical comparison and numerical experiments.