Quality Risk In Outsourcing: Noncontractible Product Quality And Quality Risk In Outsourcing: Noncontractible Product Quality And

Quality Risk In Outsourcing: Noncontractible Product Quality And Private Quality Cost Information

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Source: Stanford University

Date: January 2008

Type: White Paper

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Overview: Recent trends in outsourcing have spread contract manufacturers’ (CMs) responsibility to new areas such as sourcing, design, and even research and development. This research paper from Stanford University is based on quality risk as lower OEM profits and product quality in the OEM-CM channel relative to a vertically integrated firm. The objective is to characterize the effects of each quality risk factor, and to design contracts that maximize the OEM’s profit by mitigating quality risk. It also explains the effect of the OEM’s product-pricing strategy on OEM’s profit and on product quality.

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