Specification vagueness and supply quality risk

Yimin Wang

Naval Research Logistics (NRL), 2013, vol. 60, issue 3, 222-236

Abstract: Specifying quality requirement is integral to any sourcing relationship, but vague and ambiguous specifications can often be observed in practice, especially when a buyer is in the initial stage of sourcing a new product. In this research, we study a supplier's production incentives under vague or exact quality specifications. We prove that a vague specification may in fact motivate the supplier to increase its quantity provision, resulting in a higher delivery quality. Vague quality specification can therefore be advantageous for a buyer to screen potential suppliers with an initial test order, and then rely on the received quality level to set more concrete quality guidelines. There is a degree, though, to which vague quality specification can be effective, as too much vagueness may decrease the supplier's quantity provision and hence the expected delivery quality. © 2013 Wiley Periodicals, Inc. Naval Research Logistics, 2013

Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:wly:navres:v:60:y:2013:i:3:p:222-236

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