Supply Chain Strategies for Quality Inspection under a Customer Return Policy: A Game Theoretical Approach

Abstract

This paper outlines the quality inspection strategies in a supplier–buyer supply chain under a customer return policy. This paper primarily focuses on product quality and quality inspection techniques to maximize the actors’ and supply chain’s profits using game theory approach. The supplier–buyer setup is described in terms of textile manufacturer–retailer supply chain where quality inspection is an important aspect and the product return from the customer is generally accepted. Textile manufacturer produces the product, whereas, retailer acts as a reseller who buys the products from the textile manufacturer and sells them to the customers. In this context, the former invests in the product quality whereas the latter invests in the random quality inspection and traceability. The relationships between the textile manufacturer and the retailer are recognized as horizontal and vertical alliances and modeled using non-cooperative and cooperative games. The non-cooperative games are based on the Stackelberg and Nash equilibrium models. Further, bargaining and game change scenarios have been discussed to maximize the profit under different games. To understand the appropriateness of a strategic alliance, a computational study demonstrates textile manufacturer–retailer relation under different game scenarios.