Review of supplier diversification and pricing strategies under random supply and demand

Abstract

Uncertainties of supply and demand are two major sources of risk in any supply chain. As a result, the companies are implementing different strategies to mitigate the effects of these risks. Supplier diversification and responsive pricing are two of the main strategies that are used to mitigate the supply and demand risks. In supplier diversification, a firm uses multiple channels of sourcing while in responsive pricing, a firm manipulates demand through pricing to mitigate supply and demand risks. In this paper, we review lot-sizing problems when supply and demand are random. We focus on studies that have considered supplier diversification or responsive pricing as a mitigation strategy. We classify the studies based on their main assumptions and summarise their major findings. Finally, we present some directions for future research. Part of what we have found is that most studies that use multiple decision makers have focused on cases where information is complete and non-cooperative. There is a need to consider more realistic situations when there is information asymmetry between the decision makers. In addition, we have found that there is a lack of studies that look at the impact of joint ordering and pricing in the existence of multiple suppliers.