Abstract
Practically, supply disruption may lead production process to entirely halt (completely disrupted) or the output to differ in the order size (partially disrupted), which makes it more difficult for the retailer to satisfy stochastic market demand. Under the circumstance, the retailer is likely to procure products from two suppliers to effectively alleviate the demand-supply mismatches. Thus, under supply disruption and stochastic demand, this paper develops both backup sourcing and simultaneous sourcing (SS) strategies to analyze the retailer’s performance, where backup sourcing includes wholesale price priority (WPP) and supply reliability priority (SRP). Specifically, (1) under WPP, when the selling price is relatively lower (higher), the retailer is suggested to activate the reliable backup supplier after the realization of supply disruption (demand uncertainty). (2) Under SRP, two scenarios including minor disruption and major disruption can be identified, where the retailer’s order quantity from the reliable (unreliable) supplier under minor disruption scenario is more (less) than that under major. (3) Finally, this paper systematically compares the retailer’s preferences among WPP, SRP, and SS via theoretical results and numerical examples. That is, when the unreliable supplier is more likely to work normally or shortage cost (selling price) is relatively lower, the retailer prefers SPR regarding the unreliable supplier as backup sourcing due to its lower wholesale price and acceptable supply disruption. Otherwise, the retailer is inclined to WPP regarding the reliable supplier as backup sourcing for ensuring all market demand to be satisfied. In addition, unless the emergency prices of two suppliers are extremely higher, backup sourcing strategies could perform better than simultaneous sourcing strategy.
Highlights
The upstream supply process is highly vulnerable to supply disruption, ranging from major breakdowns because of natural or man-made disasters to minor interruptions due to material contamination and labour problems [1, 2]
wholesale price priority (WPP) and supply reliability priority (SRP) have found their wide applications to prevent the retailer from stock risk, it is urgent for the retailer to identify the most appropriate backup sourcing strategy via trading off supply disruption and stochastic demand as well as wholesale prices
(3) under supply disruption, this paper systematically compares the retailer’s preferences towards backup sourcing and simultaneous sourcing strategies via theoretical results and numerical examples. (i) Since WPP-DR could ensure market demand to be entirely satisfied by expensive emergency replenishment from the reliable supplier, the retailer would regard it as the optimal backup sourcing when selling price or shortage cost is relatively higher
Summary
The upstream supply process is highly vulnerable to supply disruption, ranging from major breakdowns because of natural or man-made disasters (e.g., earthquakes and floods) to minor interruptions due to material contamination and labour problems [1, 2]. The reliable backup supplier can be activated after the supply disruption occurs or both supply and demand risks are realized, which can be labeled as WPP-SR and WPP-DR strategy, respectively Another typical form is supply reliability priority (SRP) strategy, where the reliable supplier with higher wholesale price is viewed as major sourcing, while the unreliable supplier with lower wholesale price is viewed as backup supplier. At is, when market demand is stochastic, the retailer procures products from both the unreliable supplier and the reliable supplier at the same time Under this policy, the retailer could take the advantage of lower wholesale price from two suppliers and avoid expensive emergency costs, while it is responsible for demand risk. (i) Since WPP-DR could ensure market demand to be entirely satisfied by expensive emergency replenishment from the reliable supplier, the retailer would regard it as the optimal backup sourcing when selling price or shortage cost is relatively higher.
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