Effect of coordinated replenishment policies on quality
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Effect of coordinated replenishment policies on quality SA Starbird* Santa Clara University, Santa Clara, USA Coordinated replenishment is a supply chain policy that affects many operational performance measures, including cost, lead time, and quality. In this paper, we develop a mathematical model of a simplified supply chain in which conformance quality is one of the supplier’s decision variables and both the supplier and its customer are trying to minimize expected annual cost. Our expected cost model includes the important quality costs (appraisal, prevention, internal failure, and external failure) as well as holding, set-up, and ordering costs. Our results indicate that coordination leads to a decline in total cost but that coordination does not necessarily lead to an improvement in quality. In other words, buyers who are using coordinated replenishment may be trading higher quality for lower cost. Journal of the Operational Research Society (2003) 54, 32–39. doi:10.1057/palgrave.jors.2601476 Keywords: supply chain management; quality control; costing; inventory control
Introduction Coordinated replenishment (CR) is the branch of supply chain management that focuses on the ordering and delivery relationship between a supplier, or set of suppliers, and a customer, or set of customers (also called manufacturers and retailers in the literature). Early CR studies looked for ways to coordinate the replenishment policies of suppliers and customers in order to minimize expected costs or maximize expected profits.1–5 In more recent studies, researchers have extended the models to consider contracting options and asymmetric information.6–9 Proponents of CR argue that coordination can lead to a variety of improvements in operational performance, including reduced delivery time, smaller inventories, and reduced overall cost, and that these improvements lead to improved customer satisfaction and firm competitiveness.10 One measure of operational performance that has received relatively little attention but may be significantly affected by coordination is the quality of the goods delivered by the supplier to the customer. CR research can be classified by the assumptions regarding the number of suppliers, customers, and products, and by the objective function, the nature of demand, and the relative amount of information available to the suppliers and their customers. For example, Wagner and Whitin’s work1 focuses on the case of a single supplier and a single customer exchanging a single item that the customer uses *Correspondence: SA Starbird, Operations & Management Information Systems Department, Leavey School of Business and Administration, Santa Clara University, Santa Clara, CA 95053, USA. E-mail: [email protected]
to meet non-constant, deterministic demand. Veinott2 later developed a model that considers multiple customers (‘retailers’ in Veinott’s paper) and in 1979, Silver3 considered multiple items deli
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