Quality investment and price decision in a risk-averse supply chain

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Author(s)

  • Gang Xie
  • Wuyi Yue
  • Shouyang Wang
  • Kin Keung Lai

Related Research Unit(s)

Detail(s)

Original languageEnglish
Pages (from-to)403-410
Journal / PublicationEuropean Journal of Operational Research
Volume214
Issue number2
Publication statusPublished - 16 Oct 2011

Abstract

In this paper, we investigate quality investment and price decision of a make-to-order (MTO) supply chain with uncertain demand in international trade. Due to volatility of orders from buyers, the supplier and the manufacturer in the supply chain are subject to financial risk. In contrast to the general assumption that players in a supply chain are risk neutral in quality investment and price decision, we consider the risk-averse behavior of the players in three different supply chain strategies: Vertical Integration (VI), Manufacturer's Stackelberg (MS) and Supplier's Stackelberg (SS). The study shows that both supply chain strategy and risk-averse behavior have significant impacts on quality investment and pricing. Compared to a risk-neutral supply chain, a risk-averse supply chain has lower, same and higher quality of products in VI, MS and SS, respectively. Also, we derive the conditions under which the supply chain strategy is implemented in a decentralized setting. A numerical study is used to illustrate some related issues. © 2011 Elsevier B.V. All rights reserved.

Research Area(s)

  • Make-to-order, Preference theory, Quality investment, Risk tolerance, Supply chain strategy

Citation Format(s)

Quality investment and price decision in a risk-averse supply chain. / Xie, Gang; Yue, Wuyi; Wang, Shouyang; Lai, Kin Keung.

In: European Journal of Operational Research, Vol. 214, No. 2, 16.10.2011, p. 403-410.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review