Abstract:

Focused on the multiple effects of product quality, a two level product service supply chain model was developed, which is described when the manufacturer provides the product while the strong retailer sells the extended warranty. We analyzed the influence of the quality sensitivities on the optimal decisions of product quality and price. We comparatively analyze the optimal decisions under centralized and decentralized supply chain. Furthermore, we designed a “quality cost sharing” contract to remedy the loss of profit which was caused by the improvement of quality and motivate the manufacturer. The conclusions show that while improving the quality of the products will increase the quality cost, but due to the increased demand of products and extended warranty service, the strong retailer could encourage the manufacturer to improve the quality of the products and take the initiative to share the quality cost. The “quality cost sharing” contract could improve the marketing effect of vertical marketing system and the profit of the supply chain system and the enterprises. Finally, a numerical simulation is used to verify the effectiveness of the coordination contract.

Key words: Product service supply chain, Extended warranty, Jointed pricing, Coordination contract