System dynamics analysis of Retailer's emergency strategies when facing irrational demand and supply disruption

Abstract

Emergency events, such as epidemics, typhoons, and floods, can lead to increased demand instability, resulting in a higher risk of supply–demand imbalances in supply chains. Companies often face challenges in managing irrational demand and supply disruptions due to their limited experience. In this paper, we utilize system dynamics (SD) and susceptible-infected-recovered (SIR) model to examine the phenomenon of irrational consumer demand within the context of supply disruption. Specifically, we focus on analyzing such demand patterns across three external supply scenarios: sufficient, stable, and learning types. Furthermore, we consider emergency strategies (pricing, transshipment, and hybrid) for the retailer based on the consideration of either delayed or non-delayed delivery mechanisms. The results show that the upsurge of irrational demand following an emergency outbreak is usually short term and enormous. A higher level of panic effect leads to increased irrational demand, whereas a stronger conformity effect results in faster increases and declines of such demand during early and later stages, respectively. Furthermore, the emergency strategies should aim to mitigate the negative impacts of the disruption retailer operations and improve the retailer's emergency capabilities. Numerical analysis indicates that the retailer can increase its profit in the sufficient-type external supply scenario by adopting a pricing strategy that incorporates a delayed delivery mechanism. When facing a stable-type scenario, the recommendation is the hybrid strategy. In a learning-type scenario, the retailer should consider using the hybrid strategy with non-delayed delivery as the default option, but use a pricing strategy if delayed delivery is necessary.