Supplier Encroachment Research Articles

Interactions between supplier encroachment format and pricing scheme with horizontal shareholding

This paper examines the interactions between supplier encroachment formats (centralized encroachment or decentralized encroachment) and pricing schemes (specific pricing or uniform pricing) in a two-tier supply chain consisting of one supplier and two incumbent retailers, wherein there exists horizontal shareholding between downstream retailers. The analytical results indicate that, under specific pricing scheme, both the incumbent retailers and the supplier prefer decentralized encroachment if the magnitude of shareholding level and the encroachment cost are high. Under uniform pricing scheme, both the incumbent retailers prefer decentralized encroachment while the supplier prefers centralized encroachment. Under centralized encroachment format, both the acquiring retailer and the supplier have consistent preference over pricing scheme (i.e., specific pricing scheme) while the acquired retailer prefers uniform pricing scheme. Under decentralized encroachment format, both the incumbent retailers prefer uniform pricing scheme if the magnitude of shareholding level is low and the encroachment cost is high, or the magnitude of shareholding level is high; both the supplier and the encroaching retailer prefer specific pricing scheme if the encroachment cost is high.

Who Benefits From Supplier Encroachment in the Presence of Manufacturing Cost Learning?

Manufacturing cost plays a crucial role in suppliers’ encroachment decisions. A high manufacturing cost impedes suppliers’ capacity to encroach. However, cost learning may reduce this cost sufficiently enough to make encroachment profitable for the supplier at a later point in time. Accordingly, he may have an incentive to boost production so as to promote cost learning. Thus, he may drop the wholesale price to induce the retailer to buy more. On the one hand, cost learning may enable encroachment, which may be detrimental to the retailer. On the other hand, cost learning results in a lower manufacturing cost which may translate into a lower future wholesale price, benefiting the retailer. Therefore, the retailer faces a dilemma: should she increase her order quantity to advance cost learning or not? As the retailer may order fewer units in the initial period to limit future direct channel sales, the supplier faces a challenge: should he, instead of dropping his initial wholesale price, raise it to signal his intention of not encroaching so as to induce the retailer to sell a higher quantity in the first period? We model the supplier–retailer interaction as a two-period Stackelberg game to address the retailer’s dilemma and to identify the optimal supplier response. We uncover a new outcome, which arises in the presence of cost learning, where the supplier encroaches but decides not to sell anything through the direct channel. In addition, we find that supplier encroachment may reduce or eliminate the retailer’s incentive to advance cost learning. This results in lower sales by the retailer, which impedes cost learning, leading to a higher future manufacturing cost (compared to the no encroachment setting). As a result, encroachment, which is typically viewed as advantageous for the supplier, may become detrimental to him. Surprisingly, the supplier continues to encroach and sell directly unless he can credibly assure the retailer that he will not encroach in the future.

Supplier Encroachment and Quality Disclosure Strategy in an E-supply Chain with Blockchain Technology

Supplier Encroachment and Quality Disclosure Strategy in an E-supply Chain with Blockchain Technology

Supplier encroachment and pricing scheme choice in a supply chain with two-sided uncertainties

ABSTRACT This paper examines supplier encroachment in a scenario where the supplier procures an input in spot and processes it into a final product, while the retailer chooses between contingent and committed pricing schemes for the contract price. We find that when the correlation between the input spot price and final product demand is relatively small, it is optimal for the retailer to adopt the contingent pricing scheme regardless of the supplier's encroachment decision. This is because this scheme enables the supplier to share the input price risk, resulting in a lower contract price. Furthermore, the likelihood of the retailer adopting the contingent pricing scheme increases as demand variability decreases or spot price volatility increases. However, supplier encroachment reduces the retailer's inclination to use the contingent pricing scheme. We further demonstrate that the supplier should encroach when the correlation is sufficiently small, because encroachment alleviates double marginalisation in the retail channel and brings the additional responsiveness in the direct channel. By contrast, a large correlation compels the supplier to encroach even with a sufficiently small market size. In this case, encroachment improves the responsiveness of both retail and direct selling quantities and enables the quantities to match the demand better.

A new coopetitive mode in a sustainable supply chain: Energy performance contracting and supplier encroachment

Energy performance contracting (EPC) is considered to promote the cooperation of low-carbon investment between supply chain members; however, few studies have examined the impact of supplier encroachment on EPC cooperation. This study investigated a new coopetitive mode in a sustainable supply chain with EPC and supplier encroachment. The supplier may provide an EPC service to curb carbon emissions for the downstream manufacturer and obtain a partial savings in carbon costs by bearing the entire cost of the EPC investment. However, the supplier is motivated to develop a new direct selling channel that engages in Cournot competition with the manufacturer in the final market. The consumer acceptance of a new encroaching channel and the unit incompatibility cost of EPC are two critical factors in supplier and manufacturer decisions. The results demonstrate that the lower the consumer acceptance of a new encroaching channel, the more radical the decision that will be made by the supplier to abate emissions after encroachment to reduce the manufacturer's emissions cost. Moreover, in contrast to the traditional result, encroachment might cause the supplier to charge a higher wholesale price when implementing EPC services. Furthermore, there exist win-win situation in the EPC scenario and lose-lose situation in which the two supply chain members are worse off whether the supplier provides either encroachment or EPC services.

On the effects of supplier encroachment under endogenous quantity leadership

On the effects of supplier encroachment under endogenous quantity leadership

Supplier encroachment deterrence through a target-oriented retailer

We investigate the interaction between the retailer’s target-based preference and supplier encroachment. The retailer might be risk-neutral (expects maximum profit) or target-oriented (maximizes his potential to achieve the target profit), and the supplier can be encroaching or not encroaching. We characterize the retailer’s target-oriented behavior using a CVaR-satisficing metric and a game theoretical framework. We find that the retailer setting an appropriate target is beneficial to the encroaching supplier. In particular, when a retailer has a specific target, the target-oriented retailer can make the encroaching supply chain reach the same efficiency as the centralized encroaching system. Different from previous studies, when the retailer’s target is high, the target-oriented retailer performs worse in the encroaching supplier than the non-encroaching supplier. In addition, if the retailer’s target and demand variability are low, the performance of encroaching supplier and target-oriented retailer will perform better than that of non-encroaching supplier and target-oriented retailer, thus achieving a win-win situation. We can provide managers with essential guidance: i) the encroaching supplier may exploit the retailer’s target-based preferences, and retailers should be cautious in making decisions based on target preferences; ii) the retailer setting a high target can benefit the encroaching supplier and the supply chain; iii) the retailer needs to set a reasonable target to achieve a win-win situation between the encroaching supplier and the target-oriented retailer.

Information sharing strategy and channel selection with substitutable products

In this paper, we develop a supply chain game model consisting of one supplier producing two substitutable products and one e-retailer, in which the e-retailer's demand information sharing strategy and the supplier's encroachment strategy for one of his products will be examined. We find that when demand is sizable, the supplier prefers to encroaching by opening a direct channel, and that the e-retailer is not willing to share the real demand information with the supplier. On the contrary, when demand is small, the supplier prefers to using the e-retail channel due to the high cost of maintaining a direct channel, while the e-retailer is inclined to share information with the supplier. Next, we show that the information sharing strategy of the e-retailer and the channel selection strategy of the supplier are interrelated. The e-retailer's sharing strategy is mainly used to dispel the supplier's expectation of encroachment in the high demand situation. In some cases, this strategy depends on the range of product substitution rates. Moreover, we also examine the impact of the supplier channel selection on the product that has not entered the direct sales channel. We find that the retail price of the product that does not use channel encroachment increases, which can lead to a higher profit for the e-retailer under certain conditions. Furthermore, we study the effect of the product substitution on the channel members' profits and show that the fierce competition between the two products can reduce the e-retailer's profit. Finally, we extend our model to various cases to show the robustness of the main results.

Games of supplier encroachment channel selection and e‐tailer's information sharing

We consider an e‐tailer's upstream supplier who wants to encroach into retailing to earn additional revenue. The supplier needs to decide whether or not to enter the retail market by either selling to consumers on the e‐tailer's platform by paying commission fees (agency encroachment) or opening an independent online/offline retail store (direct encroachment). The e‐tailer has private demand information and decides whether or not to share it with the supplier. Two leadership scenarios—the supplier‐leads (i.e., the supplier selects the channel before the e‐tailer decides whether to share information) and the e‐tailer‐leads (i.e., the supplier selects the channel after the e‐tailer decides whether to share information)—are examined. Our main findings are as follows. First, we show that the e‐tailer has no incentive to share information under no encroachment and direct encroachment. Interestingly, this result holds in both leadership scenarios. Second, a medium commission rate gives rise to an equilibrium of agency encroachment with information sharing by the e‐tailer. This equilibrium is more likely to sustain in the supplier‐leads scenario than in the e‐tailer‐leads scenario. Third, agency encroachment brings the supplier the highest sales volume (at retail in the encroaching channel plus on wholesale to the e‐tailer) when the two parties compete in quantity while direct encroachment does so for a price competition. Fourth, supplier encroachment always improves consumer surplus, but it is not necessarily welfare‐improving. Last, we find that the e‐tailer is more willing to share information to induce the supplier to encroach through his agency channel if he has a significant selling cost advantage over the supplier or can endogenously determine the commission rate.

Emission Reduction and Channel Decisions in a Two-Echelon Supply Chain Considering Service Spillovers

The development of e-commerce and the green economy has prompted suppliers of green products to introduce internet channels by which products are directly sold to consumers. However, the emergence of “price wars” and “free riding” between the two channels after the introduction of online channels may affect the stability of the green supply chain. This paper uses optimization theory to investigate the impact of service spillover effects and different channel structures on the optimal decision of supply chain members in a Stackelberg game. By comparing the equilibrium outcomes of the single-channel and dual-channel supply chain in a setting with and without retail services, we observe that the supplier prefers to encroach on the market when services that retail locations provide largely spillover to and benefit the direct sales channel. Contrary to popular belief, a higher degree of service spillovers is beneficial for the retailer to achieve more returns under the dual-channel structure, whereas supplier encroachment will lead to a decline in the service level if the spillover degree is relatively low. In addition, the emission reduction level of products under supplier encroachment is always higher than that employed in the single-channel structure if consumers have both low-carbon preference and a high degree of service sensitivity. Finally, we expand our discussion by introducing the carbon cap-and-trade (CCT) mechanism to compare the conditions for achieving Pareto improvement under supplier encroachment. These results can provide helpful insights for decision-makers in supply chain management to implement effective channel selection and achieve sustainable development.

The encroachment strategy under eco-innovation collaboration with delayed realized efficiency information

PurposeEco-innovation products, which means achieving more efficient and responsible use of resources and reducing the detrimental impact on the environment, can win a competitive advantage for the enterprises. But it is not easy to implement due to the high cost of eco-innovative technologies development, the uncertainty of market needs and return risk of investment. Many enterprises seek collaborations from their upstream suppliers to jointly carry out eco-innovation, such as Apple, IBM and Nike. A unique feature of collaboration is that efforts by one party enhance the marginal value of the other party's efforts. However, the collaboration will make the partner know the eco-innovation technology and prompt the partner to encroach the market to sell competitive products by herself. Motivated by this observation, this paper considers the optimal collaboration strategy on eco-innovation between upstream and downstream supply chain member and the optimal encroachment strategy of upstream supplier in a supply chain.Design/methodology/approachThis paper models a supply chain wherein a supplier provides products or materials for her manufacturer and cooperates with her manufacturer in eco-innovation. Also, the supplier could encroach on the market to sell similar products by herself. Then this paper uses game theory and mathematical modeling to do relative analysis.FindingsThe analysis reveals several interesting insights. First, eco-innovation collaboration makes supplier encroachment no longer only rely on the encroachment cost. The delayed realized eco-innovation efficiency information also plays a vital role. Second, different from previous research, the authors find the manufacturer's preference for supplier encroachment depends on the uncertainty of eco-innovation efficiency and potential market demand. Third, both partial and full encroachment strategies of the supplier can effectively improve the eco-innovation level.Originality/valueThe paper is the first to take the interplay between collaboration and encroachment into account in a supply chain. The results caution enterprises and policymakers to take vertical collaboration and delayed realized information into account in the competitive supply chain before making any operational decisions. Furthermore, the authors propose that governmental intervention aimed at stimulating supplier encroachment in appropriate circumstances can contribute to the improved environmental performance of products.

Switching to profitable outside options under supplier encroachment

In practice, manufacturers may encroach on retail markets through a variety of methods, one being through the use of an online channel direct to the consumers, called encroachment. Current research typically assumes that downstream retailers retain procurement from the encroaching supplier. In reality, however, retailers may have the option of switching suppliers after encroachment. By considering a supply chain consisting of one manufacturer and one retailer with outside options, this paper analyzes the effects of the option of switching suppliers on the supply chain players' strategic interactions under the threat of supplier encroachment. We consider that the manufacturer makes encroachment decision preceding the retailer's switch decision. We capture various outcomes of the encroachment and switch decisions by using a classic encroachment model with quantity decisions (Cournot model). Specifically, we identify two effects of the outside option on the strategic encroachment decision. The first, the deterrence effect, means that the manufacturer's encroachment is deterred by the threat of switching supplies altogether; while the second, the permissive effect, indicates that the retailer intends to switch to the alternative source after the encroachment. Interestingly, we show that the encroachment could improve the total profit of the incumbent manufacturer and the retailer even when the retailer's switch has occurred. In this case, however, the manufacturer profits while the retailer is hurt by the encroachment and the switch. Finally, we also investigate several extended cases to demonstrate the robustness of our findings.

Strategic analysis of supplier integration and encroachment in an outsourcing supply chain

To prevent suppliers from gaining full knowledge of production technology, original equipment manufacturers (OEMs) typically adopt a multisourcing strategy, wherein each supplier handles only a portion of the production tasks. However, a recent trend has emerged where suppliers are increasingly inclined to integrate and negotiate for control over the entire end market. The implications and impact of such integration strategies, particularly in the context of supplier encroachment, remain uncertain. In this study, we examine an OEM that outsources production tasks to two competing suppliers with varying production capabilities. The supplier with higher capacity has the potential to produce their own branded products and encroach upon the end market. To strengthen their bargaining power during the outsourcing process, the two suppliers may choose to integrate with each other. Our findings indicate that without integration, OEMs can adjust the outsourcing allocation ratio to prevent encroachment by capable suppliers. In cases of integration, although the OEM must outsource all production tasks to the integrated supplier, the likelihood of market encroachment may be reduced. Furthermore, we observe that in situations involving supplier integration and encroachment, both competitive suppliers, the OEM, and the entire supply chain can achieve a win–win–win outcome. This occurs because the supplier, acting as a market competitor, provides positive incentives for the OEM to enhance product quality, thereby maintaining market share and competitiveness. The strategic recommendations derived from our results can be valuable for supply chain members engaged in outsourcing decisions.

Supplier encroachment in the presence of asymmetric retail competition

Suppliers are increasingly adopting direct channels in addition to their incumbent retail channels. In many industries, heterogeneous retailers with different selling costs compete with each other in the retail channel. Yet, the extant literature on supplier encroachment has not addressed the impact of asymmetric retail competition on supply chain interactions. In this paper, we investigate the supplier’s encroachment strategy in the presence of asymmetric retail competition using a game theoretic model. Our analysis reveals the following insights. Retail competition enhances a cost-efficient retailer’s benefit from supplier encroachment. This result contrasts with the established understanding that retailers are less likely to benefit from supplier encroachment in the presence of retail competition. Further, it is well known that retailers cannot benefit from supplier encroachment when the number of retailers competing is beyond a certain threshold. We show that the above result does not necessarily hold when the retailers are asymmetric. Specifically, we prove that the efficient retailer might benefit from supplier encroachment irrespective of the number of competing retailers. Finally, we show that asymmetric retail competition not only makes it easier for the supplier to encroach but also boosts the direct selling quantity. Our study contributes to the supplier encroachment literature by revealing the impact of asymmetric retail competition on the supplier’s encroachment strategy.

Blockchain adoption and contract coordination driven by supplier encroachment and retail service: An analysis from consumers’ information traceability awareness

This study constructs a supply chain consisting of a supplier with online encroachment and a retailer with retail service in the presence of consumers' information traceability awareness. We first establish two scenarios, without blockchain technology scenario and with blockchain technology scenario, and derive the equilibrium solutions. Next, we respectively analyze the effects of consumers' information traceability awareness, the sharing proportion of information traceability cost for the supplier, and the matching degree between retail service and consumers’ taste on the equilibrium solutions. Then, we derive the conditions of blockchain adoption in the supply chain. Finally, with the target of improving the profitability of the supply chain after adopting blockchain technology, we propose several coordination contracts to achieve Pareto improvement.

Information sharing in an e‐tailing supply chain for fresh produce with supplier encroachment

AbstractThis paper considers an e‐tailing supply chain for fresh produce (E‐FSC) composed of a supplier investing in freshness‐keeping effort and an e‐retailer providing value‐added service. We study the e‐retailer's information sharing strategy with supplier encroachment. First, we discuss the supplier's encroachment strategy without or with information sharing and indicate that the e‐retailer may profit more from encroachment. Second, we explore the e‐retailer's information sharing strategy under two scenarios. Under the independent scenario, the e‐retailer may share information when the freshness sensitivity is comparatively high, which cannot affect the supplier's encroachment strategy. Under the interactive scenario, the e‐retailer influences the supplier's encroachment strategy through an information sharing strategy. The e‐retailer may share (withhold) information to induce (deter) encroachment when the competition intensity is comparatively low or high (moderate). Finally, we discuss the influence of the entry cost on E‐FSC members’ profits, which finds that increasing entry cost may improve the supplier's profit.

Strategic inventory and supplier encroachment under asymmetric information

The existing literature has shown that using a strategic inventory strategy and supplier encroachment strategy exclusively or simultaneously may improve the efficiency of the supply chain. However, most research assumes that the demand information in the supply chain is symmetric. In real life, the retailer often has private demand information, and thus the demand information is asymmetric. The role of an information sharing strategy in the presence of strategic inventory and supplier encroachment has yet to be studied. The gap is filled by considering a two-period model consisting of a supplier and a retailer, for which information sharing, strategic inventory, and supplier encroachment are investigated with a focus on the effect of strategic inventory strategy on information sharing strategy, encroachment strategy, and the profit of supply chain members. We significantly contributed by considering the interaction between the retailer's strategic inventory strategy, information sharing strategy, and the supplier's encroachment strategy. Asymmetric information is first introduced in the strategic inventory model. Furthermore, our other significant contribution is presented to demonstrate that strategic inventory can hurt all firms when the demand information is asymmetric, which is different from the setting of perfect information. The following results are obtained. First, holding strategic inventory will not affect the retailer's information sharing strategy. Second, the use of strategic inventory by the retailer will restrain the use of encroachment strategy by the supplier, whether the information is shared or not. Finally, when the demand information is asymmetric, and the supplier does not encroach in the second period, the retailer can use strategic inventory to bring about 'lose-lose' or 'win-lose' outcomes besides 'win-win' or 'lose-win' outcomes.

Supplier Encroachment with Mutual Outsourcing

Supplier Encroachment with Mutual Outsourcing

The Impact of Capacity Information on Supplier Encroachment

In today's complex business environment, conflicting relationships among firms are becoming the norm. Firms can be supply chain partners, but at the same time, they can be competitors. Moreover, capacity is often limited. Prior research has examined this problem in a perfect information setting, but in reality, a supplier often has private information in its own capacity. We consider a signaling game in which the supplier has private information in its own capacity. The supplier first sets the wholesale price. The buyer then decides on the order quantity, and the supplier decides whether or not to encroach on the end-customer market. We find that the supplier can be worse off while the buyer can be better off from the supplier's private information on capacity.Moreover, when the capacity information is private, it is more likely for a supplier to encroach on the end-customer market. Our paper also shows that capacity withholding is less likely when information is asymmetrical. Finally, we find that both firms can simultaneously benefit from the supplier's capacity constraint. Our paper demonstrates that keeping information on the capacity level private can be harmful, so the supplier should find ways to disclose its capacity information credibly (e.g., by using Electronic Data Interchange (EDI) or linking its database with the buyer). However, the buyer should be cautious about adopting these technologies. Furthermore, not having information about supplier capacity not only increases the possibility of supplier encroachment, but also makes strategic inventory (capacity withholding) less important.

Information acquisition and sharing strategies of supply chain with supplier encroachment considering signaling effect

Information acquisition and sharing strategies of supply chain with supplier encroachment considering signaling effect