Dynamic Quality and Advertising Decisions Considering Product Recalls in Supply Chain

Abstract

Under the trend of economic globalization and lean production, how to cope with the costs in the supply chain is a core issue to be considered in the operation and management of enterprises. In this paper, we construct a supply chain system consisting of a supplier and a manufacturer who buys components from the supplier to produce finished products and then sells them to consumers. Considering the potential product recalls and the existence of cost-sharing contracts among supply chain members, we constructed game models for the non-cooperative and cooperative scenarios respectively, and explored how supply chain members adjusted their advertising media and quality investments to cope with the product recalls in both scenarios; we also explored the coordinating effects of the cost-sharing contracts on the supply chain through the comparisons of the two scenarios. The study finds that: Manufacturers can effectively incentivize suppliers to invest more in primary quality and improve product quality through cost-sharing contracts. The effectiveness of cost-sharing contracts in coordinating the supply chain is affected by the likelihood of recalls and the extent of recall damage, and cooperation can only be achieved when both are relatively small.