Sourcing under cost information asymmetry when facing time-sensitive customers

Abstract

Abstract We study a supply chain with a manufacturer and two different suppliers. One supplier is a big company abroad, who is prime and offers high quality modules with long lead time. The other supplier is a small local company, taken as the urgent supplier by the manufacturer, who can produce modules in inferior quality but with flexible delivery time. Excess customers beyond the orders from the prime supplier, who are sensitive to the delivery time, may be satisfied by modules from the urgent supplier. As the urgent supplier owns private cost information (either low or high cost type) and the prime one is the wholesale price setter, the manufacturer should carefully design his sourcing strategy. In this paper, we show that the manufacturer may deny the urgent supplier, allow only the low cost type or permit both cost types of the urgent supplier, which follows a threshold type policy. When both cost types participate, whether the manufacturer differentiates the urgent supplier is also threshold type controlled. With fully characterizing the contracting issue with the urgent supplier, we derive the optimal wholesale price of the prime supplier and related order quantity from him. We further analyze how the delivery time guarantee elasticity affects the performance of each party in the supply chain through either analytical or numerical studies.