The objective of this proposed research is to study both the physical and economic incentive functionalities of sampling plans in an outsourcing environment, in which suppliers may lack incentive to improve product quality. Inspection has been applied widely in practice as a useful quality control tool to catch defects and assure product quality. However, in an outsourcing environment, inspection can not only serve as a preventive tool that catches defects, but also as a screening device that offers economic incentive for suppliers to improve parts quality. This research adopts game and industrial organization theories to capture the interest conflicts among different parties in a supply chain or network, and uses statistical theory to model product quality correlation and detection across product units/batches. This research has three goals: (1) to examine the performance of existing inspection policies (e.g., variables/attribute/multi-stage acceptance sampling plans) in an outsourcing environment; (2) to derive optimal sampling plans that not only balance the tradeoffs among various costs but also provide sufficient economic incentive for suppliers to improve parts quality; and (3) to integrate inspection tools with operational strategies (e.g. product design) to effectively manage product quality in supplier networks.
If successful, the result of this research will lead to new sampling plans and quality control strategies for supply chains that face high quality risks. Practitioners can utilize these new sampling plans to achieve their desired quality level in an outsourcing environment. The results of this research are expected to not only extend the inspection theory but also to provide a linkage between the quality control field and the supply chain management field. Research efforts and results will be disseminated through publications, conferences and classroom instruction.
We often think of outsourcing as just simply moving production to another place or another country for the purpose of saving manufacturing costs, but pay little attention to management challenges caused by lack of information transparency in global supply chains. Keeping suppliers at arm’s length and pursuing a shortsighted goal of pressing procurement costs can easily discourage suppliers from enhancing product quality that is much less measurable and observable than product quantities and costs. Facing cost pressure, suppliers can secretly loose quality standards of components and products, which sometimes results in expensive product recalls if defects are not caught on time before they reach the marketplace. For instance, there were massive recalls of toys that contain excessive lead level in 2007, which costs toy importers millions of dollars. One main reason that Chinese toy suppliers use high lead level paints and/or components is to save pennies in manufacturing costs. Inspection, a traditional quality control technique, was immediately brought on as safeguard. Appropriate inspection procedures can not only detect product defects ex-post but also deter suppliers’ bad behavior ex-ante. This new preventive functionality of inspection/sampling on quality assurance in global supply chains is the focus of our research supported by this National Science Foundation award. We found that a well-designed inspection plan can offer suppliers a strong incentive to assure product quality, in particular, when working with other economic awards and penalties (e.g., co-sharing potential quality damages). Periodic inspection is a must-have component in long-term quality assurance scoring systems. When we reach the end of this National Science Foundation award, we have successfully broadened the view of inspection as a quality management tool not only to monitor quality information but also to encourage suppliers’ quality enhancement activities in global supply chains. The PhD student involved in this project will graduate in Spring, 2015. We have actively involved several undergraduate students in the research. The research stimulates their interests in supply chain and game theory study, and encourages several of them to pursue graduate study in operations research.
