Supply chain quality and pricing decisions under multi-manufacturer competition
| Date | 05 February 2018 |
| Published date | 05 February 2018 |
| Pages | 164-187 |
| DOI | https://doi.org/10.1108/IMDS-03-2017-0092 |
| Author | Jiangang Pang,Kim Hua Tan |
| Subject Matter | Information & knowledge management,Information systems,Data management systems,Knowledge management,Knowledge sharing,Management science & operations,Supply chain management,Supply chain information systems,Logistics,Quality management/systems |
Supply chain quality and pricing
decisions under
multi-manufacturer competition
Jiangang Pang
Management School, Southwest University of Science and Technology,
Mianyang, China, and
Kim Hua Tan
The University of Nottingham, Nottingham, UK
Abstract
Purpose –In today’s global competition, supply chain quality management is the key to a firms’
competitiveness. However, managers find that making sound quality and pricing decisions under a complex
multi-echelon in the current competitive electronic commerce environment is daunting and challenging. The
purpose of this paper is to examine the optimum quality strategies under different cooperative mechanisms
and investigate its effects on channel members’profits.
Design/methodology/approach –This paper is a result of a China-UK collaborative research effort,
involving researchers with expertise in in formation systems, quality management, supply chain
management, pricing, and game theory models. The authors consider the quality decisions of a single
product in a supply chain system that consists of a supplier and two competing manufacturers. The authors
examine the optimum quality strategies under different cooperative mechanisms and investigate its effects on
channel members’profits. A modified Nerlove-Arrow model is employed to investigate the quality levels on
goodwill and product sales.
Findings –The results reveal that the traditional cooperative program is not very effective in the horizontal
competitive market; and each channel member may have a profit improvement when the supplier integrates
with a manufacturer.
Originality/value –The authors believe that this paper will contribute to the existing body of knowledge.
Moreover, the paper provides insights for managers to better manage their supply chain quality management
in an information-centric context.
Keywords Supply chain management, Quality improvement, Goodwill, Differential games
Paper type Research paper
1. Introduction
Nowadays, consumers are paying more attention to the product quality than the price alone.
In a number of industries, competition is shifting from price to quality in specific segments
of the market (Gans, 2002; Ren and Zhou, 2008; Kumar et al., 2016). A recent study of the
automotive industry (Hu et al., 2016) shows that Chinese consumers placed more emphasize
on the product quality when making purchasing decisions. Thus, many firms are stepping
up their product quality performance to improve their competitiveness in the market.
However, for most products, the journey from raw materials to final products is not
within a single firm but throughout a supply chain. Thus, a manufacturer’s final product
quality depends on not only its own quality efforts but also on the quality of the component
supplied by its supplier (Reyniers and Tapiero, 1995; Robinson and Malhotra, 2005; Foster,
2008; Hsieh and Liu, 2010). In practice, supply chain quality management is becoming an
important part of a manufacturer’s work with suppliers (El Ouardighi and Kim, 2010),
and the supply chain quality becomes a key component in achieving competitive advantage
(Xie, Yue, Wang and Lai, 2011). Many firms (such as GE, Roll Royce) allocated a significant
Industrial Management & Data
Systems
Vol. 118 No. 1, 2018
pp. 164-187
© Emerald PublishingLimited
0263-5577
DOI 10.1108/IMDS-03-2017-0092
Received 9 March 2017
Revised 13 June 2017
Accepted 15 June 2017
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0263-5577.htm
This research work has been supported by the project of National Natural Science Fund (No. 71472172)
and Doctor Foundation of Southwest University of Science and Technology (No. 16sx7105).
164
IMDS
118,1
portion of their budget for the sole purpose of improving its suppliers’component quality.
It is becoming a common practice that manufacturers share a part of their suppliers’quality
cost to stimulate their suppliers do more on the quality improvement (Balachandran and
Radhakrishnan, 2005).
The supply chain quality management has also received significant attention from the
researchers (Reyniers and Tapiero, 1995; Lim, 2001; Balachandran and Radhakrishnan,
2005; Tapiero, 2007; Zhu et al., 2007; Hsieh and Liu, 2010; Chao et al., 2009; Xie, Yue, Wang
and Lai, 2011; Xiao et al., 2011; Wognum et al., 2011; Hu et al., 2016). However, these studies
mainly focus on a “single-supplier single-manufacturer”framework. There is limited
research that considers the wider competition of supply chain quality management
(El Ouardighi and Kim, 2010; Xie, Wang and Lai, 2011) in a two-directional context.
The main contribution of this paper is that it ex tends existing “single-supplier
single-manufacturer”supply chain quality management work to the “single-supplier
two-manufacturer”context. This generalization has provided new analytical results
illustrating how decision makers balance quality and pricing strategies in the competitive
market. In short, the supply chain system considered in this paper consists of a supplier and
two competing manufacturers, where the manufacturer produces/sell f inal products that
consist of two components (e.g. one is provided by the supplier and the other is offered by the
manufacturer). We believeour work is more meaningful to the managers than justconsidering
a single supplier and manufacturer, which is impossible in today’s globalized market.
We aim to examine the optimum quality strategies under different cooperative
mechanisms and investigate its effects on channel members’profits. By utilizing the
differential game theory, the equilibrium quality decisions for all channel members
are calculated in four different scenarios: each channel member makes decisions with a
non-cooperative program; each channel member makes decisions with a cooperative
program; the supplier cooperates with a manufacturer as a joint venture; and the supplier
integrates with a manufacturer.
The remainder of this paper is structured as follows. The relevant literature is reviewed
in the next section. Section 3 discusses the general models proposed in this study. The
equilibrium quality decisions for the all channel members in four different scenarios are
discussed in Section 4. Section 5 describes the numerical analysis and results. Section 6
discusses the implication of this research and its contributions to knowledge as well as the
research limitations, and directions for future research.
2. Literature review
This research is building on the body of literature on supply chain quality management
under horizontal competition. Reyniers and Tapiero (1995) studied the effect of a contract on
a supplier’s quality improvement effort and a producer’s inspection policy in both
non-cooperative and cooperative games under the assumption of complete information.
Lim (2001) extended the work of Reyniers and Tapiero (1995) into a supply chain
with incomplete information. Balachandran and Radhakrishnan (2005) considered a double
moral hazard case in quality investment effort and modeled the fixed share rate contract
for allocating the costs of internal failures. Tapiero (2007) adopted the traditional
Neyman-Pearson theory to the control of quality in a supply chain system. Hsieh and Liu
(2010) investigated the quality investment decisions of the supplier and the manufacturer in
four non-cooperative games with different degrees of information available. Xie, Yue, Wang
and Lai (2011) investigated quality investment and price decision of a make-to-order supply
chain with uncertain demand, and their results showed that both the supply chain strategy
and risk-averse behavior have significant impacts on quality investment and price decision.
Ma et al. (2013) investigated the equilibrium quality and marketing efforts of the
manufacturer and the retailer under three supply chain structures.
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Supply chain
quality and
pricing
decisions
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