Speaker:  Professor Hsiao-Hui Lee ( University of Hong Kong )

 

Topic: Managing Supplier Quality: Inspection, Cooperation, and Incentives

 

Location: 916 Meeting Room , Building 1 , College of Management , NTU

 

Admission: is free and open to all. No ticket required.

 

Dr. Hsiao-Hui Lee received her Ph.D. and Master degree in Operations Management from the University of Rochester. Her research agenda focuses on the service operations management focus on healthcare applications, and empirical operations management with focus on corporate social responsibility and innovation in supply chains. She has published research papers in several academic journals including Management Science, Operations Research, Manufacturing & Service Operations Management, IIE transactions, and Decision Support System. Prior to joining the University of Hong Kong, Dr. Lee was a visiting assistant professor of OPIM at the School of Business, University of Connecticut in 2010-2011.

 

This paper studies the buyer’s strategy to manage sourced quality by considering the three strategies: cooperation, incentives, and inspection. We consider a general effect relationship between the buyer and supplier efforts (which can be either substitutable or complementary on the quality-improvement effects). We find that when the efforts are strongly substitutable, the buyer chooses a low incentive price and inspection accuracy but rely on her own effort to improve quality, resulting in a cooperation-based strategy. When efforts are relatively independent, the buyer should adopt the whole set of devices, resulting in an integrative strategy: She exerts significant effort herself, while offering a large incentive price to induce high effort from the supplier, and she also inspects the delivery with high accuracy. When the efforts are highly complementary, the buyer should adopt an inspection-based strategy: The buyer will not exert effort from her side, nor offer incentive to induce effort from the supplier's side, due to a prisoner's dilemma. Thus, a stringent inspection is needed to guard against defects and ensure the outgoing quality. When the buyer is able to commit her effort, however, the inspection-based strategy will be replaced by an integrative strategy. This suggest that, when the buyer's effort is complementary with the supplier's to improve quality, it is important for the buyer to commit or offer the investment, such as training and education programs, before the supplier takes his move.