Quality level and outsourcing strategies in a three-tier low-carbon supply chain

Abstract

Abstract We analyze the quality risk and outsourcing strategies in a three-tier low-carbon supply chain comprising an original equipment manufacturer (OEM), a contract manufacturer (CM) and a supplier under two competitive scenarios. The following two outsourcing strategies that are currently implemented by OEM are considered: consignment and turnkey. Under the consignment strategy, the OEM procures the components from the supplier and then outsources the product manufacturing to the CM. Under the turnkey strategy, the OEM outsources the component procurement and product manufacturing to the CM and CM procures the components from the supplier. We compare the quality level and two outsourcing strategies under non-competitive scenario in which the CM does not have its own brand products and competitive scenario in which the CM sells its own brand production. It is shown that, in the non-competitive scenario, OEM prefers the turnkey strategy than the consignment strategy in the low-carbon supply chain. In the competitive scenario, the OEM’s outsourcing strategy depends on the CM’s quality investment cost coefficient.