Modelling inter-supply chain competition with resource limitation and demand disruption

Abstract

This paper proposes a comprehensive model for studying supply chain versus supply chain competition with resource limitation and demand disruption. We assume that there are supply chains with heterogeneous supply network structures that compete at multiple demand markets. Each supply chain is comprised of internal and external firms. The internal firms are coordinated in production and distribution and share some common but limited resources within the supply chain, whereas the external firms are independent and do not share the internal resources. The supply chain managers strive to develop optimal strategies in terms of production level and resource allocation in maximising their profit while facing competition at the end market. The Cournot–Nash equilibrium of this inter-supply chain competition is formulated as a variational inequality problem. We further study the case when there is demand disruption in the plan-execution phase. In such a case, the managers need to revise their planned strategy in order to maximise their profit with the new demand under disruption and minimise the cost of change. We present a bi-criteria decision-making model for supply chain managers and develop the optimal conditions in equilibrium, which again can be formulated by another variational inequality problem. Numerical examples are presented for illustrative purpose.