Quality Improvement Incentive Strategies in a Supply Chain

Nowadays, firms commonly focus on their core competencies while outsourcing other functions to the suppliers that possess particular technical and cost advantages. This outsourcing trend has yielded various forms of supply chain. In a typical buyer-supplier relationship such as an OEM (original equipment manufacturer)-CM (contract manufacturer) supply chain or a final assembler- supplier supply chain, the buyer determines the design specification of the product and delegates the production to a supplier. Therefore, the supplier should ensure compliance with the design specification of the product while the design quality of the product is specified by the buyer. However, the more sophisticated the competition among supply chains becomes, the more the buyers need to rely on their suppliers to keep up with the changing needs of consumers by improving time-to-market and operational efficiency. Therefore, the recent outsourcing trend does not allow suppliers to only focus on the quality compliance of their production process but requires them to also engage in product design, which entails investing in their own R&D capabilities. For example, Nike cooperates with its suppliers in product design while almost 100% of shoe production is outsourced. Similarly Boeing delegate