System Dynamics Modeling of Backup Purchasing Strategies under Supply Disruption Risks

Abstract

We model a supply chain using system dynamics involving one retailer and two independent suppliers that are referred to as major supplier and backup supplier, respectively. Furthermore, the chain provides only one product; only the major supplier will experience disruptions, and the buyer uses the backup supplier either as a contingent supplier or a standby supplier. Our paper extends the existing literature and contributes by providing a better understanding of the impacts of supply disruptions on the system performance and shedding deeper insights into the value of a backup supply. Three models are built under supply disruption risks: supply chain without backup supplier, that with a contingent supplier and the one with a stand-by supplier. The retailer’s total profits are also compared to help the decision-makers choose the appropriate backup purchasing strategy.