Procurement competition in the presence of IoT-enabled B2B E-commerce

Abstract

• We explore whether manufacturers give up traditional channel under B2B spot market. • Two risk-averse manufacturers engage a Cournot competition. • Manufacturers choose the optimal procurement strategy based on spot price variance. • The FN strategy may benefit the whole downstream manufacturers. • The FF subgame always benefits the whole supply chain. The Internet of things (IoT) has accelerated the development of e-commerce and enabled business-to-business (B2B) spot markets to emerge. This study considers a supply chain composed of one supplier and two manufacturers. Two manufacturers can procure raw materials from dual sources, that is, from a supplier with a forward contract or from a B2B spot market. Two manufacturers use raw materials to produce the final product and take part in Cournot competition in the final customer market. On the basis of the procurement strategies of two manufacturers, three competition structures exist between the manufacturers: (NN) both manufacturers procure raw materials only from a B2B spot market; (FN) one manufacturer procures raw materials from dual sources, namely, a forward contract and a B2B spot market, while the other manufacturer only obtains them from a B2B spot market; and (FF) both manufacturers procure raw materials from dual sources. We investigate which procurement strategy is better for manufacturers. Our study finds that the optimal setting is for manufacturers to procure raw materials from dual sources if and only if the spot price uncertainty exceeds a threshold value. Furthermore, the optimal wholesale price in the FN subgame is less than the price in the FF subgame. The optimal order quantity in the FF subgame is less than the quantity in the FN subgame. Whole downstream manufacturers can benefit from the FN strategy if the supplier’s risk aversion exceeds a threshold value. Meanwhile, the FF subgame always benefits the whole supply chain.