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Mathematical Problems in Engineering
Volume 2017, Article ID 4391475, 10 pages
https://doi.org/10.1155/2017/4391475
Research Article

Supplier’s Joint Investments in Cost Reduction and Quality Improvement in a Decentralized Supply Chain

1School of Management and Economics, University of Electronic Science and Technology of China, Chengdu, Sichuan 611731, China
2Department of Information Engineering, Sichuan Staff University of Science and Technology, Chengdu, Sichuan 610101, China

Correspondence should be addressed to Hengyun Zhang; moc.361@ctseuyhz

Received 27 April 2017; Revised 24 July 2017; Accepted 25 July 2017; Published 22 August 2017

Academic Editor: Vladimir Turetsky

Copyright © 2017 Hengyun Zhang and Dingjun Hong. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

We consider a decentralized supply chain with a downstream manufacturer and an upstream supplier. The upstream supplier sells a product to the manufacturer, who faces a quality and price sensitive demand. The supplier has a chance to invest in both cost reduction and quality improvement of its product. We derive the optimal investment and pricing decisions for the supply chain members. We do so in both the centralized and the decentralized supply chains. We show that the optimal investment and pricing decisions in the decentralized supply chain may deviate from that in the centralized supply chain. We develop a mechanism to coordinate the decentralized supply chain. The developed mechanism contains four policies: wholesale price, sharing of revenue, sharing of cost reduction investment cost, and sharing of quality improvement investment cost. We also show that the developed coordination mechanism can lead to Pareto improvement.