Seminar: Group Warranty Contracts to Coordinate Assembly Supply Chains with Non-testable Components


Department of Systems Engineering and Engineering Management
The Chinese University of Hong Kong

Title: Group Warranty Contracts to Coordinate Assembly Supply Chains with Non-testable Components

Speaker: Ms. Linlin Li
               Department of Industrial Engineering and Management Sciences
               Northwestern University

Date: March 1, 2012 (Thursday)

Time: 11:15a.m. - 12:15p.m.

Venue: Room 513 (5/F)
            William M.W. Mong Engineering Building
            (Engineering Building Complex Phase 2)

In many industries, it is common that suppliers provide critical components or significant labor that contributes to the building of the final product. However, the quality of each supplier's component or labor may not be directly observable. We consider a supply chain where multiple suppliers contribute to the assembly of a product (through providing components or labor). The product fails if any of its components (or elements of work) fails, but to find the faulty component can be prohibitively difficult. We study group warranty contract for the manufacturer to induce suppliers to improve quality. When information is symmetric and the manufacturer can contract on his own quality, we show that a group warranty contract can achieve the first-best outcome. When the manufacturer's quality is not contractible, the manufacturer and all the suppliers under-invest in qualities. We then extend our model to the case when suppliers have private quality cost information. Further, we consider whether the manufacturer benefits from sourcing multiple components from a single supplier, i.e., single-sourcing. Interestingly, we find that single-sourcing benefits the manufacturer when his quality is not contractible, but hurts him in the presence of asymmetric quality cost information of the suppliers. Finally, our numerical study shows that the impact of contractibility is more significant than that of information asymmetry. At last, we consider a simple situation where there are both testable and non-testable components and make suggestions on how to combine group warranty with sequential test.


Linlin Li is a PhD candidate in the department of Industrial Engineering and Management Sciences at Northwestern University. Her research interests lie in Operations Management and Supply Chain Management. Her dissertation focuses on capacity and quality contract design in supply chains. Linlin joined the PhD program at Northwestern University in September 2007 and expect to graduate in summer 2012. Prior to joining the department, she received her Master degree in Control Science and Engineering from Tsinghua University and a Bachelor degree from Nankai University. Besides research, she also enjoys teaching and working with undergraduate students.

************************* ALL ARE WELCOME ************************
Host: Prof. Duan Li

Tel: (852) 3943-8316/8323


Enquiries: Prof. Nan Chen or Prof. Sean X. Zhou
                 Department of Systems Engineering and Engineering Management





Thursday, March 1, 2012 - 03:15 to 04:15