Optimal pricing and sourcing strategies in the presence of supply uncertainty and competition

Abstract

The implementation of cost leadership strategy can enable enterprises to obtain a lasting competitive advantage. In this paper, we construct a supply chain with two competing suppliers and two competing manufacturers. The suppliers act as the Stackelberg leaders, selling components to the follower manufacturers. The manufacturers use different sourcing strategies, one of which only uses the reliable supplier, while another adopts contingent dual sourcing. We derive the analytical form of the equilibrium solution of order quantities of manufacturers and wholesale prices of suppliers in different scenarios and compare the decision differences when reliable supplier stays in different game positions. We further investigate the impact of different cooperation contract between the manufacturer who adopts dual sourcing and unreliable supplier on the procurement and pricing strategies by numerical experiments. The results illustrate that reliable supplier acts as the Stackelberg leader are more beneficial to suppliers. Manufacturer with dual sourcing can work with the unreliable supplier by revenue sharing contract to achieve a win–win situation.