Design of traceability systems for product recall

Abstract

A product recall is very expensive and a poorly executed recall can be devastating to a company’s reputation. It is, therefore, important to improve the traceability for supply chains to address potential recalls. This paper studies the recall dynamics in a two-stage supply chain with a manufacturer and two suppliers. It is shown that the suppliers would opt-out in improving traceability due to misalignment of incentives, leading to diminishing traceability of the whole supply chain and high product recall liabilities for the manufacturer. To address this problem, this research designs an interest-sharing mechanism by which the recall liability reduction of the manufacturer due to improved traceability can be shared with the suppliers to induce traceability improvement effort. Results show that the interest-sharing mechanism improves not only the economic benefit, but also the traceability for each party. We also provide a systematic framework to choose the design parameters, including the degree of accuracy and level of coding, for the supply chain to realise such benefits.

Keywords:

• traceability
• RFID
• product recall
• interest-sharing mechanism

Notes

1. suggests that the manufacturer improves (1) the traceability degree by changing from to , and/or (2) the traceability precision by changing from to or from to .

Additional information

Funding

Funding. This research is supported by the National Natural Science Foundation of China [grant numbers 71202124, 71272235]. We would like to express our gratitude to the referees for their useful suggestions to improve our manuscript.