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Quality testing and product rationing by input suppliers

Version 2 2024-06-04, 08:54
Version 1 2016-10-28, 09:29
journal contribution
posted on 2024-06-04, 08:54 authored by A Arya, Ning GongNing Gong, RNV Ramanan
Quality testing by suppliers has significant ramifications for downstream supply chain participants and retail consumers. This article focuses on such implications accounting for the fact that suppliers often enjoy discretion in quality testing and reporting. Under a discretionary testing and reporting environment, we show that a supplier can improve the market's perception of product quality by engaging in self-imposed production cuts. Production cuts dampen supplier incentives to engage in excessive quality testing, putting the supplier and the market on a more equal information footing. This reduces the market's need to skeptically discount product quality to protect itself. The improved market perception, then, reduces quality testing demand, introducing cost savings. The result that costly production cuts can improve quality perceptions indicates that the groundwork for influencing market perceptions may have to be laid upfront, even prior to acquiring private information, providing a contrast to routine signaling models.

History

Journal

Production and operations management

Volume

23

Pagination

1835-1844

Location

Hoboken, N.J.

ISSN

1059-1478

eISSN

1937-5956

Language

eng

Publication classification

C1.1 Refereed article in a scholarly journal, C Journal article

Copyright notice

2013, Production and Operations Management Society

Issue

11

Publisher

Wiley