Cost-sharing mechanisms for product quality improvement in supply chains

Abstract

In today's dynamic and competitive modern business environment, the performance of a supply chain is increasingly driven by quality improvement and effective coordination mechanisms. The rising costs associated with innovation or quality enhancement force companies to collaborate within the supply chain to maintain a competitive edge. This chapter explores coordinating contracts in the context of product quality to incentivize quality improvement and align the objectives of the supply chain. Specifically, we focus on the cost-sharing contracts and how they relate to the existing quality models, employing both static and dynamic game-theoretic frameworks. Our objectives are: (1) to introduce the concept of quality within the supply chain context, (2) to analyze how different contract structures influence supplier-manufacturer relationships, optimize profit sharing, and mitigate risks associated with quality failures, (3) to provide different industrial examples of how firms can excel in quality management, and finally (4) to explore the future research agenda in this particular area of the supply chain. Our chapter aims to build a bridge between academics and practitioners in operations management, marketing, operations research, and industrial engineering in the context of supply chain contracts. Furthermore, our chapter emphasizes the strategic interplay among stakeholders in competitive and disruptive frameworks.