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.
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DOI : 10.1051/ro/2019053
Mots-clés : Recall loss sharing, quality investment, dual sourcing, contract manufacturing, game theory
@article{RO_2020__54_4_1133_0,
author = {Dong, Binwei and Tang, Wansheng and Zhou, Chi},
title = {Strategic sourcing under recall loss sharing and product quality investment},
journal = {RAIRO - Operations Research - Recherche Op\'erationnelle},
pages = {1133--1160},
publisher = {EDP-Sciences},
volume = {54},
number = {4},
year = {2020},
doi = {10.1051/ro/2019053},
mrnumber = {4109815},
language = {en},
url = {http://www.numdam.org/articles/10.1051/ro/2019053/}
}
TY - JOUR AU - Dong, Binwei AU - Tang, Wansheng AU - Zhou, Chi TI - Strategic sourcing under recall loss sharing and product quality investment JO - RAIRO - Operations Research - Recherche Opérationnelle PY - 2020 SP - 1133 EP - 1160 VL - 54 IS - 4 PB - EDP-Sciences UR - http://www.numdam.org/articles/10.1051/ro/2019053/ DO - 10.1051/ro/2019053 LA - en ID - RO_2020__54_4_1133_0 ER -
%0 Journal Article %A Dong, Binwei %A Tang, Wansheng %A Zhou, Chi %T Strategic sourcing under recall loss sharing and product quality investment %J RAIRO - Operations Research - Recherche Opérationnelle %D 2020 %P 1133-1160 %V 54 %N 4 %I EDP-Sciences %U http://www.numdam.org/articles/10.1051/ro/2019053/ %R 10.1051/ro/2019053 %G en %F RO_2020__54_4_1133_0
Dong, Binwei; Tang, Wansheng; Zhou, Chi. Strategic sourcing under recall loss sharing and product quality investment. RAIRO - Operations Research - Recherche Opérationnelle, Tome 54 (2020) no. 4, pp. 1133-1160. doi : 10.1051/ro/2019053. http://www.numdam.org/articles/10.1051/ro/2019053/
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