scholarly journals Backup Sourcing Decisions for Coping with Supply Disruptions under Long-Term Horizons

2016 ◽  
Vol 2016 ◽  
pp. 1-16 ◽  
Author(s):  
Jing Hou ◽  
Lijun Sun
Keyword(s):  
Wholesale Price ◽  
Dual Sourcing ◽  
Supply Disruptions ◽  
Sourcing Strategy ◽  
Major Supplier ◽  
Single Sourcing ◽  
Inventory Control Problem ◽  
Risk Parameters ◽  
Disruption Risks

This paper studies a buyer’s inventory control problem under a long-term horizon. The buyer has one major supplier that is prone to disruption risks and one backup supplier with higher wholesale price. Two kinds of sourcing methods are available for the buyer: single sourcing with/without contingent supply and dual sourcing. In contingent sourcing, the backup supplier is capacitated and/or has yield uncertainty, whereas in dual sourcing the backup supplier has an incentive to offer output flexibility during disrupted periods. The buyer’s expected cost functions and the optimal base-stock levels using each sourcing method under long-term horizon are obtained, respectively. The effects of three risk parameters, disruption probability, contingent capacity or uncertainty, and backup flexibility, are examined using comparative studies and numerical computations. Four sourcing methods, namely, single sourcing with contingent supply, dual sourcing, and single sourcing from either of the two suppliers, are also compared. These findings can be used as a valuable guideline for companies to select an appropriate sourcing strategy under supply disruption risks.

Strategic sourcing under recall loss sharing and product quality investment

2020 ◽  
Vol 54 (4) ◽  
pp. 1133-1160
Author(s):  
Binwei Dong ◽  
Wansheng Tang ◽  
Chi Zhou
Keyword(s):  
Product Quality ◽  
Wholesale Price ◽  
Optimal Choice ◽  
Product Recall ◽  
Dual Sourcing ◽  
Investment Level ◽  
Sourcing Strategy ◽  
Practical Operation ◽  
Single Sourcing ◽  
Operation Risk

Product recall has been a widespread practical operation risk in the production outsourcing. To remit even avoid product recall risk, this paper considers a two-echelon supply chain where the original equipment manufacturer (OEM) orders a critical component from one or two contract manufacturers (CMs) and uses it to produce finished product with potential quality defect. The CMs can decide investment level to reduce defect possibility and share recall loss with the OEM once product recall is implemented. When the recall loss sharing rate is fixed, the OEM may adopt the single sourcing strategy or the dual sourcing strategy which depends on the recall loss sharing rate. Moreover, if the sharing rate is relatively small, the single sourcing strategy is an optimal choice for the OEM. However, when the recall loss sharing rate is determined by the OEM, she prefers to adopt the dual sourcing strategy. Meanwhile, an increase of the recall loss sharing rate may not force the CM to improve product quality. By the numerical analysis, if the marginal recall loss is large or the wholesale price is relatively small, the OEM and the CMs can reach a win-win scenario. Finally, we examine an extension in which the CMs have pricing ability on wholesale price, and the result shows that the OEM can not obtain a cost-reduction benefit under the dual sourcing strategy.

scholarly journals Improving effectiveness of spare parts supply by additive manufacturing as dual sourcing option

OR Spectrum ◽  
2020 ◽  
Author(s):  
N. Knofius ◽  
M. C. van der Heijden ◽  
A. Sleptchenko ◽  
W. H. M. Zijm
Keyword(s):  
Additive Manufacturing ◽  
Spare Parts ◽  
Aviation Industry ◽  
Failure Behavior ◽  
Dual Sourcing ◽  
Production Methods ◽  
Holding Costs ◽  
Unit Costs ◽  
Single Sourcing ◽  
Low Volume

Abstract The low-volume spare parts business is often identified as a potential beneficiary of additive manufacturing (AM) technologies. Currently, high AM unit costs or low AM part reliabilities deem the application of AM economical inferior to conventional manufacturing (CM) methods in most cases. In this paper, we investigate the potential to overcome these deficiencies by combining AM and CM methods. For that purpose, we develop an approach that is tailored toward the unique characteristics of dual sourcing with two production methods. Opposed to the traditional dual sourcing literature, we consider the different failure behavior of parts produced by AM and CM methods. Using numerical experiments and a case study in the aviation industry, we explore under which conditions dual sourcing with AM performs best. Single sourcing with AM methods typically leads to higher purchasing and maintenance costs while single sourcing with CM methods increases backorder and holding costs. Savings of more than 30% compared to the best single sourcing option are possible even if the reliability or unit costs of a part sourced with AM are three times worse than for a CM part. In conclusion, dual sourcing methods may play an important role to exploit the benefits of AM methods while avoiding its drawbacks in the low-volume spare parts business.

Comparison of single sourcing (with lot streaming) and dual-sourcing

2017 ◽  
Vol 69 (11) ◽  
pp. 1701-1710 ◽  
Author(s):  
Niloy J. Mukherjee ◽  
Subhash C. Sarin
Keyword(s):  
Lot Streaming ◽  
Dual Sourcing ◽  
Single Sourcing

On Co-opetitive Supply Partnerships with End-Product Rivals: Information Asymmetry, Dual Sourcing and Supply Market Efficiency

2021 ◽  
Author(s):  
Seung Hwan Jung ◽  
Panos Kouvelis
Keyword(s):  
Wholesale Price ◽  
Information Leakage ◽  
Problem Definition ◽  
The Other ◽  
Theoretic Model ◽  
Market Information ◽  
Dual Sourcing ◽  
Strategic Sourcing ◽  
Demand Information ◽  
Separating Equilibrium

Problem definition: We consider opportunities for cooperation at the supply level between two firms that are rivals in the end-product market. One of our firms is vertically integrated (VI), has in-house production capabilities, and may also supply its rival. The other is a downstream outsourcing (DO) firm that has better market information. The DO is willing to consider a supply partnership with the VI, but it also has the option to use the outside supply market. Academic/practical relevance: Such co-opetitive practices are common in industrial supply chains, but firms’ co-opetitive strategic sourcing with the potential of information leakage has not been examined in the literature. Methodology: We build a game-theoretic model to capture the firms’ strategic interactions under the co-opetitive supply partnership with the potential information leakage. Results: The DO exploits its information advantage to obtain a better wholesale price from the VI and may use dual sourcing to protect its private information. Anticipating that, the VI may offer wholesale price concessions as an information rent to obtain the DO’s information. Our work identifies demand uncertainty and efficiency of outside supply market as the factors affecting the VI’s pricing decision and the resulting equilibrium. Pooling equilibrium arises often, but in a few cases, the equilibrium is separating. At the separating equilibrium, the DO always single sources, either from the VI or the independent supplier depending on the demand state. The VI benefits from ancillary revenue-generating opportunity, and from information acquisition in a separating equilibrium. On the other hand, the DO’s benefit is a cheaper price in exchange for market information in a separating equilibrium. In the pooling case, the DO uses dual sourcing to hide demand information, especially in the high demand case, and to better supply the end-market through his accurate demand information. Managerial implications: Our work provides useful insights into firms’ strategic sourcing behaviors to efficiently deal with the potential of information leakage in the co-opetitive supply environment and for the rationale behind such relationships often observed in industries.

scholarly journals Optimal Supply Diversification Strategy under Supply Disruption

2020 ◽  
Vol 2020 ◽  
pp. 1-18
Author(s):  
Xiaomeng Luo ◽  
Jia Ren
Keyword(s):  
Production Systems ◽  
Wholesale Price ◽  
Real Life ◽  
Capacity Constraints ◽  
The Other ◽  
Diversification Strategy ◽  
Optimal Contracts ◽  
Major Disruption ◽  
Disruption Risks ◽  
Restoration Effort

When a disruption caused by human or environmental accident occurs in production systems, it may cause a shortage of the supply, and thus the buyers’ procurement behaviors will be influenced. This paper studies a supply chain comprised of a buyer and two types of suppliers: one is cheap but unreliable and the other is reliable but expensive. If there is a major disruption, the unreliable supplier may not be able to fully satisfy the buyer’s order, despite the fact that it exerts additional effort to rebuild capacity; at the same time, the reliable supplier cannot fulfill extra orders from the buyer due to capacity constraints. In this way, the buyer should strategically allocate its order between the two types of suppliers by offering different contracts at the very beginning, and then the unreliable supplier chooses its optimal restoration effort according to the contract if a disruption occurs. The model is built based on the real-life cases such as Walmart and Apple such that it is the buyer who determines the wholesale price of the unreliable supplier’s products. The results show the optimal contracts provided by the buyer under different circumstances, which aims to help managers design their contracts under disruption risks to maximize the company’s profit.

scholarly journals Incentive Mechanism for Sustainable Improvement in a Supply Chain

2019 ◽  
Vol 11 (13) ◽  
pp. 3508 ◽  
Author(s):  
EuiBeom Jeong ◽  
GeunWan Park ◽  
Seung Ho Yoo
Keyword(s):  
Supply Chain ◽  
Environmental Quality ◽  
Stackelberg Game ◽  
Wholesale Price ◽  
Optimal Solution ◽  
Incentive Contract ◽  
Sustainable Improvement ◽  
Profit Performance

In this study, we consider the issue of sustainable development in the supply chain consisting of an original equipment manufacturer (OEM) and a contract manufacturer (CM). We investigate how to facilitate the CM’s investment in the environmental quality of a product so as to properly respond to climate change. We introduce a quantity incentive contract, and obtain the optimal solution based on a Stackelberg game. The OEM, as the focal company, determines the level of the incentive, and the CM, responsible for product design and production, determines its level of environmental quality given the OEM’s incentive offer. To investigate the effectiveness of the quantity incentive contract and provide important implications, we analytically compare the quantity incentive contract with the basic wholesale price contract without any incentives and conduct numerical experiments. Our results reveal that the quantity incentive contract facilitates the CM’s investment in environmental quality, and enhances the environmental, market, and profit performance of not only the CM but also the OEM which pays the incentive. We also show that the quantity incentive contract is suitable to develop a long-term relationship between the OEM and the CM.

Strategic Sourcing Under Severe Disruption Risk: Learning Failures and Under-Diversification Bias

2020 ◽  
Author(s):  
Kyle Goldschmidt ◽  
Mirko Kremer ◽  
Douglas J. Thomas ◽  
Christopher W. Craighead
Keyword(s):  
Risk Mitigation ◽  
Problem Definition ◽  
Diversification Strategy ◽  
Strategic Sourcing ◽  
Supply Disruptions ◽  
Ex Post ◽  
Sourcing Strategy ◽  
Daunting Task ◽  
Disruption Risk ◽  
Managerial Implications

Problem definition: We study sourcing behavior in severe conditions where supply disruptions are rare but carry the potential of wiping out several rounds worth of a firm’s profit. Academic/practical relevance: The tradeoff between scale economies from supplier consolidation and risk mitigation from supplier diversification is at the core of firms’ sourcing strategy and one that is empirically understudied. Methodology: We study supplier diversification through a behavioral lens and test theoretically derived predictions under controlled laboratory conditions. Results: Our data provide strong evidence for under-diversification. We posit that this pattern is partly because of the fact that investing in supplier diversification involves an upfront cost to achieve a delayed, and rarely encountered, benefit. Managerial implications: Under-diversification bias is costly, and its causes are difficult to overcome, presenting firms with the daunting task of devising debiasing mechanisms that reinforce a supplier diversification strategy when the rarity of disruptions almost always render supplier consolidation the ex post preferred strategy.

scholarly journals Research on the Fresh Agricultural Product Supply Chain Coordination with Supply Disruptions

2013 ◽  
Vol 2013 ◽  
pp. 1-9 ◽  
Author(s):  
Sun Guohua
Keyword(s):  
Supply Chain ◽  
Supply Chain Coordination ◽  
Wholesale Price ◽  
Planning Horizon ◽  
Optimal Order ◽  
Agricultural Product ◽  
Supply Disruptions ◽  
Decentralized Supply Chain ◽  
Lump Sum ◽  
Coordination Contract

This paper develops a dynamic model in a one-supplier-one-retailer fresh agricultural product supply chain that experiences supply disruptions during the planning horizon. The optimal solutions in the centralized and decentralized supply chains are studied. It is found that the retailer’s optimal order quantity and the maximum total supply chain profit in the decentralized supply chain with wholesale price contract are less than that in the centralized supply chain. A two-part tariff contract is proposed to coordinate the decentralized supply chain with which the maximum profit can be achieved. It is found that the optimal wholesale price should be a decreasing piecewise function of the final output. To ensure that the supplier and the retailer both have incentives to accept the coordination contract, a lump-sum fee is offered. The interval of lump-sum fee is given leaving both the supplier and the retailer better off with the two-part tariff contract.

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