Dynamic Decisions of Quality and Goodwill in a Two-Echelon Supply Chain with Delay Effect

Improving product quality is an effective way for a company to gain goodwill as well as to increase sales. In this paper, the focus is on a two-echelon supply chain consisting of a manufacturer and a retailer. Considering the delayed effect of quality improvement on product quality, the differential equations on the levels of quality and goodwill as the state variables are established to explore the impact of delay time on members’ strategy inputs, supply chain profits and performance under decentralized and centralized decision models. Additionally, in this paper, how different profit maximization scenarios affect supply chain revenue under decentralized models is examined. The equilibrium solutions are obtained by numerical simulation. The results show that both quality improvement efforts and marketing efforts are decreasing functions of delay time, and the delay effect affects the motivation of supply chain members’ strategic inputs. Importantly, supply chain profit under centralized decision is not always higher than that under decentralized decision when the manufacturer’s concern degree and delay time are taken into account. The Rubinstein bargaining model is then used to optimize the profit distribution between the manufacturer and the retailer under centralized decision. In this paper, it is also identified that the longer the delay time, the lower the levels of quality and goodwill. The dual effect of delay effect and concern degree will exacerbate the negative impact on the levels of quality and goodwill.