Managing disruption risk in competing multitier supply chains

Abstract

This paper studies the sourcing problem of two competing manufacturers in two supply chains. Each supply chain consists of a Tier 0 manufacturer, a Tier 1 supplier, and a pair of Tier 2 suppliers with different disruption probabilities. The two manufacturers are engaged in Cournot competition. The two Tier 1 suppliers that serve different manufacturers may procure from different or the same Tier 2 suppliers. We investigate the impact of upstream supply chain structures on the manufacturers' performance by comparing two representative configurations: the paralleled supply chain configuration, which has no overlap in Tier 2 suppliers, and the overlapped supply chain configuration, which has the same Tier 2 suppliers. We derive the manufacturers' equilibrium sourcing strategies in the two configurations. When the more reliable Tier 2 supplier is quite reliable or the more unreliable Tier 2 supplier is very unreliable, both manufacturers offer a low wholesale price to induce their Tier 1 suppliers for single sourcing. When the more reliable Tier 2 supplier is not sufficiently reliable and the more unreliable Tier 2 supplier is not that unreliable, both manufacturers offer a high wholesale price to induce their Tier 1 suppliers for dual sourcing. There are also certain conditions under which one manufacturer chooses the high‐price sourcing strategy and the other one chooses the low‐price sourcing strategy. Besides, we demonstrate that competition decreases the manufacturers' incentives to induce dual sourcing. In a more competitive market, the manufacturers prefer less overlap in their upper suppliers. Finally, we conduct several extensions to show the robustness of our findings.

Resilient supply chain network design with proactive and reactive strategies under major disruptions

“…The consequence of disruption and quantitative modeling. Following the disruption risk, the decrease in the capacity of facilities (partially or fully disrupted) is the direct adverse consequence of disruption events [46,21,24,29].…”

“…Here, we assume that production plants may face the possibility of failure under the threat of disruption events. This is a common assumption in supply chain resilience formulations [46,21,24]. The scenario-based approach is utilized to model disruption risk in this study.…”

“…The assumption that a facility fails with a certain probability is the common method to model and quantify facility disruptions. Based on this hypothesis, an integer programming model is presented with multi-level assignments to ensure supply chain continuity [59,2,1,24]. Studies have also incorporated disruption risk into supply chain design problems using a scenario-based approach [7,51,35,43].…”

Coping with an unreliable supplier: An option contract with a backup supplier

“…Recently, Chen et al (2024) considered a new crop SC in which a retailer obtains an alternative crop from two rival manufacturers. Similarly, Li et al (2022) analyzed the sourcing issue of two rival manufacturers in two SCs where each SC contains a manufacturer at the highest level, a supplier at the next level, and a pair of two suppliers with various disruption possibilities at the last level. Our review reveals that none of the previous studies has considered supply uncertainty and backup supplier in the context of SC coordination through option contracts.…”