Supply Chain Quality Management with Game Theoretic Approach

In this paper we have provided an investigation on finding optimal quality investment, inspection policy and pricing decisions in a two-echelon supply chain considering price-quality sensitive demand function. There are two agents named supplier and manufacturer in which they have distinct production and inspection capabilities inside them. Decisions made by these units are supplier quality investment, supplier outbound inspection rate, manufacturer inbound inspection, manufacturer quality investment and manufacturer outbound inspection. Final price is one of the most important decisions made through the supply chain. We have proposed a network structure which is made of all possible interactions between supply chain agents and expected profits associated with each probable path using predefined functions such as inspection costs, quality investment costs and defective rate as a function of quality investment. In the next step, we have studied the effect of implementing inspection policies, considering its contradictory effects on supply chain such as decreasing expected penalty costs, increasing product’s quality and increasing quality dependent demand while increasing inspection and finished product costs and also the final price which leads to lowering demand. This is performed by studying three modeling structures named comprehensive game, reduced game one and reduced game two, where different levels of quality gatekeeping is taken into consideration. Comparing results associated from games with different degrees of quality gatekeeping provides insightful conclusion on how each agent’s quality gatekeeping effort can affect supply chain’s profit. Finally, we draw conclusion upon the effect of agent’s quality gatekeeping on decision variables and profit functions.

Keywords:

Supply Chain Quality Management , Game Theory , Inspection Rate , Quality Investment , Quality Gatekeeping