Economic Design of Acceptance Sampling Plans in a Two-Stage Supply Chain

Supply Chain Management, which is concerned with material and information flows between facilities and the final customers, has been considered the most popular operations strategy for improving organizational competitiveness nowadays. With the advanced development of computer technology, it is getting easier to derive an acceptance sampling plan satisfying both the producer's and consumer's quality and risk requirements. However, all the available QC tables and computer software determine the sampling plan on a noneconomic basis. In this paper, we design an economic model to determine the optimal sampling plan in a two-stage supply chain that minimizes the producer's and the consumer's total quality cost while satisfying both the producer's and consumer's quality and risk requirements. Numerical examples show that the optimal sampling plan is quite sensitive to the producer's product quality. The product's inspection, internal failure, and postsale failure costs also have an effect on the optimal sampling plan. 1. Introduction Supply Chain Management focuses on the material and information flows between facilities and their final customer, and has been considered the most popular operations strategy for improving organizational competitiveness in the 21st century [1]. Recently, due to the pressure to lower manufacturing and service costs and to deliver high-quality products to market quickly, North American companies have become increasingly attracted to outsourcing and off-shoring, which is the usage of overseas workers to produce components, entire products, and services. Many companies have contracted with suppliers in lower-cost countries in order to gain access to a large pool of workers at a mere fraction of the cost of domestic facilities. For this reason, India and China are becoming major players in off-shoring, especially in the areas of manufacturing and service. Recent product recall scandals have revealed that the benefits of outsourcing and off-shoring also come with its disadvantages—in this case, the threat of quality risks in the supply chain. Some examples of recent product recalls include Toyota’s sticking accelerator pedal recall and floor mat recall (e.g., vehicles involved in the sticking accelerator pedal recall include: 2007–2010 Camry, 2009 Camry Hybrid, 2009–2010 Corolla, 2009–2010 RAV4, 2010 Highlander; vehicles involved in the floor mat recall include: 2007–2010 Camry, 2009-2010 Corolla, 2008–2010 Highlander) and China’s recent toys, pet food, and melamine milk recalls. Cao and Zhang [2] showed that firms have been