Backup or Reliability Improvement Strategy for a Manufacturer Facing Heterogeneous Consumers in a Dynamic Supply Chain

Abstract

This paper examines a manufacturer's supply management strategies for mitigating yield risk in a complex dynamic supply chain. Two strategies can be adopted for the manufacturer: backup and reliability improvement. Consumers may select to leave (instant consumers) or wait (delaying consumers) when they confront the manufacturer's insufficient inventory. Utilizing the method of multi-agent modeling, a manufacturer and a supplier are modeled as the intelligent agents with the reinforcement learning behavior. The study shows that: 1) when the number of instant consumers is small, reliability improvement strategy should be selected; otherwise, the manufacturer should adopt a backup strategy; 2) only when mean yield is large enough, reliability improvement strategy is the optimal choice; and 3) if yield uncertainty is small, the manufacturer should choose reliability improvement strategy; otherwise, it is suitable to use a backup strategy. In addition, when the main supplier can determine its own wholesale price, it is found that: 1) when the mean yield is small, a lower wholesale price should be designed for the main supplier, to induce higher order quantity under backup strategy; and 2) the impact of yield uncertainty on the manufacturer's supply management strategy can be changed by the main supplier's adaptive pricing behavior. INDEX TERMS Consumer behavior, multi-agent modeling, supply chain management, yield risk.

Drop-Shipping and Backup-Sourcing Strategies Under the Risk of Supply Disruption

“…Gao et al (2019) study three strategies (i.e., safety stock, strategic reserve, and backup-sourcing) for a manufacturer to mitigate the supply disruption risk [3]. Considering both instant and delaying consumers, Du and Jiang (2019) compare two risk mitigating strategies, i.e., backupsourcing and reliability improvement, and analyze the dominant condition of each of the two strategies [21]. He et al (2020) examine a make-to-stock production-inventory system where the manufacturer may suffer supply disruption; the authors forecast the post-disruption customer behavior, propose dynamic backup-sourcing strategy, and derive the optimal sourcing time [36].…”

“…Combining ( 17), ( 19), (21) and Lemma 4, the optimal expected profit of the supplier in Scenario 4 is as follows:…”

“…There is rich literature that investigates drop-shipping (e.g., [4], [6], [7], [9], [11], [33]) or backup-sourcing (e.g., [12], [14], [15], [17], [18], [20], [21]) strategy. These studies show that the use of drop-shipping or backupsourcing strategy can increase the downstream retailer's profit.…”

“…To the best of our knowledge, there is abundant literature examining drop-shipping (e.g., [4], [6], [7], [9], [11], [33]) or backup-sourcing (e.g., [12], [14], [15], [17], [18], [20], [21]) strategy, which shows that the drop-shipping (backupsourcing) strategy increases (decreases) the supplier's profit. Different from previous research, in this study, we consider both of the two strategies, and find that although the dropshipping (backup-sourcing) strategy makes the supplier's profit increase (decrease), the implementation of backupsourcing increases the value of the drop-shipping strategy for the supplier.…”

“…Although there is rich literature that investigates dropshipping strategy (e.g., [4]- [7], [9]- [11]) or backup-sourcing strategy (e.g., [12]- [21]), there is little literature considering both. To explore the strategic usage of drop-shipping and backup-sourcing under supply risk, we propose the following model.…”