Effects of information transparency on supply chain quality management

In supply chain management, it is conventional for the customer to use quality contracts and punishment to control its supplier's opportunistic behavior and ensure quality. However, this mechanism is reactive and its effects are hardly satisfactory. In this study, we are interested in introducing a new mechanism into supply chain quality management — information transparency. A principal-agent model is formulated to investigate the impacts of sampling inspection and information transparency on supply chain quality management. It is shown that the combined use of the two mechanisms can significantly improve the supply chain performance compared to using either of the mechanisms alone.