Improving reliability of assembly supply chains with disruption risk: stakeholders' subsidy interplay

Abstract

We consider a decentralised assembly supply chain that consists of an assembler and multiple suppliers. The cooperation between the assembler and each supplier is organised under a pull contract, which indicates that the suppliers bear the overstock risk. One of the suppliers may suffer disruption and endogenously builds the reliability, and the assembler could provide the subsidy for this unreliable supplier to improve the reliability. We reveal that in addition to the assembler, a reliable supplier with a sufficiently high wholesale price also has incentives to jointly offer subsidy for the ex ante reliability improvement. The reliable supplier's participation in reliability improvement could benefit all the supply chain members. Furthermore, we examine a subsequent reliable supplier's incentives to offer subsidy based on the previous one's. It suggests that it is not necessary for a subsequent reliable supplier with a lower wholesale price than the previous one's to provide the subsidy. Higher reliability for the whole supply chain could be achieved if the previous reliable supplier with a higher wholesale price provides the subsidy. We finally examine the impact of multiple unreliable suppliers and show that a larger number of unreliable suppliers would discourage a reliable supplier's subsidy.