Contingent or stable dual sourcing? The preferences of manufacturers and suppliers under supply disruption and competition

Abstract

ABSTRACT Manufacturers will adopt different strategies to deal with the occurrence of supply disruptions. In this paper, we conduct an analytical game-theoretical study to consider a supply chain with two suppliers (a reliable supplier and an unreliable supplier) and two manufacturers (manufacturers 1 and 2). Manufacturer 2 only orders products from the reliable supplier (Supplier R), while Manufacturer 1 can choose one of the two purchasing strategies: ‘contingent dual sourcing’ or ‘stable dual sourcing’. We study the optimal purchasing strategy of Manufacturer 1 and Supplier R under supply disruptions and competition. We find that Manufacturer 1 prefers the ‘stable dual sourcing’ strategy only if the proportion of order quantity from the unreliable supplier and the potential market size are relatively large, and Supplier R prefers the ‘contingent dual sourcing’ strategy only if the proportion of order quantity from the unreliable supplier is large, the potential market size and disruption probability is not too large.