Acquisition or investment: a manufacturer quality improvement strategic choice

Abstract

PurposeThis paper explores how the manufacturer’s strategic choice (acquisition or investment) impacts product quality in a supply chain comprising two complementary suppliers and a common manufacturer.Design/methodology/approachThe manufacturer faces six strategic choices to improve product quality: acquiring or investing in the high-capable supplier, the low-capable supplier, or both. As the Stackelberg leader, the manufacturer determines which strategy is adopted, while suppliers are separately responsible for components’ quality and wholesale prices. The authors use game theory and calculate the model with Mathematica.FindingsThe authors develop analytical models to analyze how acquisition costs, investment proportions, component importance and quality improvement coefficients influence decision-makers. The results show that the highest quality may not benefit the manufacturer. Investing in or acquiring a low-capable supplier is better than a high-capable supplier under certain conditions. If the gaps between two suppliers’ quality improvement coefficients and the importance of two components are dramatic, the manufacturer should choose an investment strategy.Originality/valueThis study contributes to the complementary supply chain management by comparing two kinds of strategies-acquisition and investment, with a high-capable supplier and a low-capable supplier.