This academic article investigates quality decision-making in a two-stage supply chain under buyer dominance. The research delves into the complexities of quality control in supply chains, noting that increased screening efforts can considerably affect consumer satisfaction by reducing product returns and boosting demand. However, one key issue is that one actor in the supply chain often decides on the quality level, but another bears the related costs, including screening costs. The study suggests optimal screening practices can significantly increase supply chain profits, especially in buyer-dominated settings.
The study focuses on the seller-buyer relationship, exploring both coordinated and non-coordinated contracts, and proposes an optimization model to analyze the impact of quality decisions, buyer dominance, and coordination. Numerical examples support the findings to illustrate the effects of these decisions on overall profitability under various assumptions.
In supply chains where the buyer is dominant, they can dictate wholesale prices and quality standards, often leading to reduced profit margins for the seller. This can have long-term implications on supply chain stability. The study suggests that fair profit sharing or government intervention could mitigate these issues. In a coordinated scenario, buyer and seller work together to maximize integrated supply chain profit, leading to increased profitability, lower retail prices, improved quality levels, and enhanced consumer satisfaction.
The article provides an example of the role of buyer power in retail, particularly in the context of supermarkets and large retailers like Wal-Mart. These dominant buyers can enforce low prices and high-quality standards on suppliers, affecting the entire supply chain. The study emphasizes the potential benefits of collaboration and coordination in supply chains, which can maximize total surplus rather than just individual party profits.
In conclusion, the research provides insights into how quality decisions and buyer dominance impact supply chain profitability and efficiency. Coordination between buyers and sellers can lead to mutually beneficial outcomes, particularly in buyer-dominated scenarios. This includes improved profits, consumer satisfaction, and overall supply chain performance. The study also suggests that further research is needed to explore different aspects of buyer dominance, such as its impact on the seller’s ability to invest in quality and new product development and the role of regulations in shaping supply chain decisions.
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