Minimizing the risk of supplier nonperformance in a decentralized supply chain

In this dissertation, we consider several models that study ways that buyers can maintain quality in supply chains while outsourcing the manufacture of key components.;We first consider the quality-related problems faced by an original equipment manufacturer (OEM) who must reduce costs by outsourcing while not compromising the quality of its products. We present a model based on the industry practice of pre-qualifying suppliers. This model allows us to analyze the tradeoff present by encouraging competition when outsourcing to reduce cost, and the increased risk that the product delivered will be of insufficient quality.;Next, we consider alternative models that capture the benefits of competition while mitigating the risks of supplier non-performance. The first model addresses the problem of incomplete information, specifically how the buyer mitigates the risk of supplier non-performance when the buyer cannot fully evaluate supplier abilities before a contract is signed. The second model is a warranty cost sharing model that allows the buyer to increase quality while maintaining competition in the outsourcing environment.;In creating and analyzing these models, both analytically and numerically, we obtain several key managerial insights into the proper design of procurement processes.