A two-stage capacity reservation contract model with backup sourcing considering supply side disruptions

Abstract

ABSTRACT To deal with disruption at the supply side, the use of backup suppliers is among the commonly employed strategies. In this research, we derived a dual sourcing model using capacity reservation contracts for a supply chain consisting of a retailer, a primary supplier who may experience disruption, and a reliable backup supplier. This dual sourcing model is a reactive strategy that balances flexibility and redundancy to improve supply chain resilience. The aim of the proposed model is to help find optimal solutions for the reserved capacities of the retailer to the suppliers and the constructed capacities of the suppliers. It has been derived in this research that the above-mentioned reserved/constructed capacities exist uniquely. Sensitivity analyses were also conducted to examine the impact of contract parameters on decision variables. This research contributes to existing knowledge by providing deeper insights into the application of the capacity reservation contract to handle supply disruption.