Sourcing with recycled materials: a contingent sourcing model with supply unavailability and setup time uncertainty for ripple effect mitigation

Abstract

ABSTRACT In this study, a multi-period contingent sourcing model for sustainable sourcing is developed to mitigate the ripple effect caused by supply disruption. In this model, the manufacturer's main supplier is a recycled materials supplier who is subject to random disruptions and whose materials have setup time uncertainty. His backup supplier is a virgin materials supplier who is reliable. We investigate how the manufacturer's attitude towards risk affects his absorptive-capacity decision making and his sourcing strategy, both of which have not been addressed in the related literature. Our analyses reveal that the manufacturer's decisions are strategic substitutes as cost-related parameters (except the product holding cost) vary when he is risk-neutral and can become strategic complements when he is averse to risk. Furthermore, the manufacturer can improve contingent sourcing performance by leveraging adaptive capacity through choosing the proper timing at which to switch to the backup supplier. Finally, the manufacturer's sourcing strategy is sensitive to attitude towards risk when the cost difference between virgin and recycled materials is within a specific range over which higher restorative capacity from the main supplier and lower setup time uncertainty with recycled materials are required to justify a more risk-averse manufacturer's adoption of contingent sourcing.