A General Multitiered Supply Chain Network Model of Quality Competition with Suppliers

Abstract

In this paper, we develop a general multitiered supply chain network equilibrium model consisting of competing suppliers and competing firms who purchase components for the assembly of their final branded products and, if capacity permits, and it enhances profits, produce their own components. The competitive behavior of each tier of decision-makers is described along with their strategic variables, which include quality of the components and, in the case of the firms, the quality of the assembly process itself. The governing equilibrium conditions of the supply chain network are formulated as a variational inequality and qualitative properties are presented. The algorithm, accompanied with convergence results, is then applied to numerical supply chain network examples, along with sensitivity analysis in which the impacts of capacity disruptions and complete supplier elimination are investigated.