Managing Quality Risk in a Decentralized Supply Chain: Contractual Incentives and Product Recall Insurance

• 成果类型: Article; Early Access
• 署名作者: Chen, Jing; Wei, Hang; Xie, Lei; Zheng, Chaonan
• 署名单位: Southeast University - China; Shanghai University of Finance & Economics; Shanghai Business School
• 刊物名称: PRODUCTION AND OPERATIONS MANAGEMENT
• ISSN/ISSBN: 1059-1478
• DOI: 10.1177/10591478251365310
• 发表日期: 2025
• 关键词: Product Recall Insurance; Product Quality Risk; Inspection Strategy; Decentralized Supply Chain

摘要

We consider a two-echelon decentralized supply chain where the probability of selling nondefective products depends on the supplier's quality improvement and the buyer's inspection efforts. Products assembled from defective components cause a recall that leads to external failure costs for the buyer. Both players' efforts are not contractible and it is a challenge to align inspection and quality-improvement efforts in a decentralized supply chain. We find that a procurement contract can provide preventive incentives that induce high inspection efforts and enhancing incentives that enable the supplier to credibly commit to high-quality components. However, these contractual incentives only align two players' efforts under certain conditions. Interestingly, our findings suggest that introducing a product recall (PR) insurance requirement into a standard procurement contract provided by the buyer can complement enhancing incentives and lead to quality improvement in components. More importantly, as PR insurance can improve the flexibility of risk-sharing arrangements between the supplier and the buyer, we show that it can also serve as a coordinating role in improving the performance of a decentralized supply chain.