Incentivizing supplier quality improvement through timely IoT data sharing in the industry 5.0 era

In Industry 5.0 era, the Internet of Things (IoT) empowers manufacturers to capture real-time consumer preference data, which can be shared with upstream suppliers to promote flexible quality improvement in critical components. This paper considers a supply chain where a downstream manufacturer (he) determines whether to deploy IoT for collecting consumer preference data and then decides whether to share these data with his upstream supplier (she). In response to data-sharing strategy of the manufacturer, the supplier can adjust the timing of component quality improvement. With a game-theoretic approach, we analyze the optimal strategies for IoT-derived data sharing and quality improvement. With this study, it is revealed that the manufacturer can incentivize the supplier to conduct an early quality improvement through IoT-derived data sharing. It is also found that IoT-derived data sharing will erode the manufacturer’s information advantage, leading to a decrease in profit. However, no sharing of the data will weaken the supplier’s incentive to invest in early-stage quality improvement. Under certain conditions, the loss associated with delayed quality investment of the supplier can exceed that resulted from data sharing with the supplier. Hence, in these cases, it is optimal for the manufacturer to share data voluntarily so as to push the supplier to conduct quality improvement as early as possible. In equilibrium, the manufacturer can always benefit from IoT adoption and data sharing. As for the supplier, she may suffer a “data-sharing dilemma”, that is, even though quality improvement and data sharing may lead to a loss in her profit, the loss will be greater without quality improvement and data sharing. Therefore, in these cases the supplier has to invest in quality improvement. Further, we conduct some extensive research by which to demonstrate that these findings are robust to a good extent.