Pricing and sourcing strategies for competing retailers in supply chains under disruption risk

Abstract

Supply disruption has become a critical concern for businesses around the world. The extant literature has dealt mainly with the sourcing decision for a price-taking retailer. In this paper, we study how a retailer can use pricing decisions along with sourcing strategies under disruption risk while competing against another retailer with a more reliable supply chain. The retailer uses two decision levers namely, price adjustment, and split of order between reliable but expensive supplier and/or cheap but unreliable supplier to compete in the end market. Our analyses show that the competitive dynamics is shaped by the cost structure of the players, relative market potential and disruption risk. We find that the retailer focuses on reliable supplies with less price adjustment when it enjoys procurement cost advantage and higher market potential. On the other hand, as the procurement cost advantage and market potential shifts to the competitor; the retailer opts for cheaper but risky supplies and relies on drastic price adjustments. These results have important managerial implications and provide critical guidelines for retailers involved in pricing and sourcing decisions under the threat of supply disruptions.