Strategic outsourcing decisions for manufacturers competing on product quality

Cooperative quality investment in outsourcing

“…They also proposed a quality decision model that had an exogenous price for the competing supply chain (Xie et al, 2011a(Xie et al, , 2011b. Moreover, Xiao et al (2014) examined strategic outsourcing decisions for two competing supplier-manufacturer supply chains in which the manufacturers' key components have quality improvement opportunities. In addition, a few papers started to study manufacturer quality decisions and retailer effort decisions by considering a quality and effort-induced demand pattern in a manufacturer-retailer supply chain in which the manufacturer distributed a chosen quality product through the retailer using a simple wholesale pricing contract.…”

“…Currently, outsourcing is a pervasive feature of a supply chain and has contributed significantly to the growth of the global economy. Firms in different industries increasingly consider outsourcing to be a strategic option to reduce the cost, improve the quality, increase productivity, and enhance core competencies (Xiao et al, 2014). A new report has stated that Pacific Rim Countries accounted for 46.6% of the total United States manufactured imports and China accounted for 54.7% (approximately 25.5% of the total manufactured imports) of the United States manufactured imports from Pacific Rim Countries in 2012 (Morrison, 2013).…”

“…However, some argue that more reliance on outside suppliers is likely to lead to a loss of overall market performance due to issues such as the loss of long term of research and development (R&D) competitiveness, incompatible strategy goals, long lead-times, less control on the quality, higher transaction costs, poor delivery reliability, and the loss of in-production capability (Gilley and Rasheed, 2000;Xiao et al, 2014).…”

“…Enlightened by the famous "Manufacturer Stackelberg" and "Retailer Stackelberg" models proposed by Choi (1991), we consider two types of channel power structures: The CM has complete control on the quality decision vs. the OEMs have complete control on the quality decision. In addition, observing the downstream firms in a supply chain, such as retailers cooperating on product differentiation to relax price competition (Banker et al, 1998;Tsay and Agrawal, 2000;Xiao et al, 2014), we investigate the OEMs cooperating and not cooperating on quality decisions separately in the latter case. We find that if the CM is willing to share a sufficiently large investment fraction, then the CQI strategy will be beneficial to quality enhancement regardless of who sets the product quality level.…”

Random yield and coordination mechanisms of a supply chain with emergency backup sourcing

“…For another example, on 20 May 2011, an unexpected explosion happened in Foxconn Industrial Park, and the manufacturer of iPad2 did not take immediate action to deal with the supply shortage, which resulted in $500 thousand of losses. Therefore, how to deal with the unpredictable supply shortage has made companies aware of the need for active supply risk management (Yu, Zeng, and Zhao 2009;Xiao, Xia, and Zhang 2013).…”