Break up or tolerate? The post-disruption cooperation in global supply chains

Abstract

Due to globalisation and outsourcing, a manufacturer may suffer supply disruptions from the overseas supplier whose capacity is impaired by unruly events such as pandemic and geopolitical tensions. Since the recovery process of the overseas supplier’s capacity after the disruption is unpredictable, the manufacturer faces a choice of whether to continue cooperation or to shift to localised procurement. This paper first explores the effects of disruptions on the global supply chain, then considers the option to order from local suppliers. The results reveal that the overseas supplier whose capacity is affected by disruption at various degrees would take different actions, including raising the wholesale price, disguising its capacity impaired, or passing up the opportunity to cooperate with the manufacturer. In addition, we propose a tolerating strategy for the manufacturer and provide a long-term insight into supplier selection. The results show that the tolerating strategy can foster cooperation and enhance supply chain visibility. Notably, we find that manufacturers serving large markets can benefit from allowing the overseas supplier to recover gradually. Moreover, we discuss the importance of flexibility in designing the tolerating strategy.