Contingent sourcing under supply disruption and competition

Varun Gupta, Bo He, Suresh P. Sethi

Research output: Contribution to journalArticle

41 Scopus citations

Abstract

With the increasing awareness of the serious consequences of supply disruption risk, firms adopt various kinds of strategies to mitigate it. We consider a supply chain in which two suppliers sell components to two competing manufacturers producing and selling substitutable products. Supplier U is unreliable and cheap, while Supplier R is reliable and expensive. Firm C uses a contingent dual-sourcing strategy and Firm S uses a single-sourcing strategy. We study the implications of the contingent sourcing strategy under competition and in the presence of a possible supply disruption. The time of the occurrence of the supply disruption is uncertain and exogenous, but the procurement time of components is in the control of the firms. We show that supply disruption and procurement times jointly impact the firms buying decisions. We characterise the firms optimal order quantities and their expected profits under different cases. Subsequently, through numerical computations, we obtain additional managerial insights. Finally, as extensions, we study the impact endogenizing equilibrium sourcing strategies of asymmetric and symmetric firms, and of capacity reservation by Firm C with Supplier R to mitigate disruption.

Original languageEnglish (US)
Pages (from-to)3006-3027
Number of pages22
JournalInternational Journal of Production Research
Volume53
Issue number10
DOIs
StatePublished - May 19 2015

All Science Journal Classification (ASJC) codes

  • Strategy and Management
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering

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