Reliability improvement incentive strategies in the manufacturing industry
ISSN: 1754-2731
Article publication date: 29 April 2021
Issue publication date: 14 December 2021
Abstract
Purpose
Companies face the critical reliability problem of products due to the development of outsourcing. This study intends to provide some feasible solutions for a company to improve the reliability level of products.
Design/methodology/approach
The paper considers the reward and reliability decisions regarding a product made with two complementary components from two different suppliers: high-capable and low-capable. Two kinds of reliability improvement incentives (normal incentive and cost-sharing incentive) through which a manufacturer provides a reward and shares the reliability improvement cost with a supplier are discussed. As the Stackelberg leader, the manufacturer determines the strategy, while the suppliers are responsible for determining its reliability. Using a game-theoretic framework, four different contract scenarios are addressed. We develop analytical methods to better understand how the manufacturer decides the incentive mechanism to be used for the suppliers.
Findings
The results show that cost-sharing contracts do not always lead to a higher reliability level and more enormous profits. Setting a target reliability level is better for the manufacturer. The cost-sharing contract is beneficial for a high-capable supplier even though it does not directly participate in that kind of mechanism. A low-capable supplier gains more profit when the manufacturer provides incentive mechanisms that do not specify a target reliability level.
Originality/value
This paper investigates the reliability improvement mechanism used for complementary products and focuses on identifying the optimal decisions when demand is influenced by the gap between the product's failure rate and the standard failure rate.
Keywords
Acknowledgements
Thanks to the editors and anonymous reviews for their careful review and helpful comments to improve this paper. No funding was received to assist with the preparation of this manuscript. The authors have no conflicts of interest to declare that are relevant to the content of this article. This manuscript has not been published and is not under consideration for publication elsewhere.
Citation
Wang, S., Song, H. and Gong, C. (2021), "Reliability improvement incentive strategies in the manufacturing industry", The TQM Journal, Vol. 33 No. 8, pp. 1886-1909. https://doi.org/10.1108/TQM-12-2020-0290
Publisher
:Emerald Publishing Limited
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