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Product Sourcing and Distribution Strategies under Supply Disruption and Recall Risks

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  • Long He
  • Ying Rong
  • Zuo‐Jun Max Shen

Abstract

When product recalls happen, firms not only have to incur additional logistics costs but also suffer from a damaged reputation. Besides, they may also supply disruption risk, under which a supplier could fail to deliver the quantity ordered at all. In this study, we discuss how to mitigate supply disruption and recall risks in the perspective of (outbound) product distribution strategy in joint with (inbound) sourcing decision. Specifically, we compare the dedicated and uniform distribution strategies as follows: in the dedicated strategy, the firm divides its market into several regions, and ships products from different suppliers based on the regions; whereas, in the uniform strategy, the firm serves the entire market by randomly shipping the products from several suppliers without distinguishing their sources. Through the comparison of both strategies, we show that the role of recall risk is different from that of supply disruption on the sourcing and distribution decision. In particular, single sourcing is optimal when both recall risk and disruption probability are low; dual sourcing with the dedicated strategy is optimal when the disruption probability is moderate and the recall risk is high; dual sourcing with the uniform strategy is optimal when the disruption probability is high. We also find that the positive correlation in recalls improves (undermines) the performance of the uniform (dedicated) strategy. In contrast, the positive correlation in supply disruptions only undermines the performance of the uniform strategy.

Suggested Citation

  • Long He & Ying Rong & Zuo‐Jun Max Shen, 2020. "Product Sourcing and Distribution Strategies under Supply Disruption and Recall Risks," Production and Operations Management, Production and Operations Management Society, vol. 29(1), pages 9-23, January.
    • Handle: RePEc:bla:popmgt:v:29:y:2020:i:1:p:9-23
    DOI: 10.1111/poms.13065
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    2. Xu, Man & Tang, Wansheng & Zhao, Ruiqing, 2023. "Should reputable e-retailers undertake service activities along with sales?," Journal of Retailing and Consumer Services, Elsevier, vol. 74(C).
    3. Chen, Jing & Wei, Hang & Xu, Shujun & Zheng, Chaonan, 2023. "The value of product recall insurance in a price competition with financially constrained suppliers," European Journal of Operational Research, Elsevier, vol. 307(3), pages 1161-1176.
    4. Guo, Yan & Yu, Xinning & Zhou, Caifeng & Lyu, Gaoyan, 2021. "Government subsidies for preventing supply disruption when the supplier has an outside option under competition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 147(C).
    5. Zhao, Yujie & Zhou, Hong & Leus, Roel, 2022. "Recovery from demand disruption: Two-stage financing strategy for a capital-constrained supply chain under uncertainty," European Journal of Operational Research, Elsevier, vol. 303(2), pages 699-718.
    6. Li, Yi & Shou, Biying, 2021. "Managing supply risk: Robust procurement strategy for capacity improvement," Omega, Elsevier, vol. 102(C).
    7. Soltanzadeh, Shima & Rafiee, Majid & Weber, Gerhard-Wilhelm, 2024. "Disruption, panic buying, and pricing: A comprehensive game-theoretic exploration," Journal of Retailing and Consumer Services, Elsevier, vol. 78(C).
    8. Yu, Yunlong & Xiao, Tiaojun, 2021. "Analysis of cold-chain service outsourcing modes in a fresh agri-product supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 148(C).
    9. Li, Huashan & Bapuji, Hari & Talluri, Srinivas & Singh, Prakash J., 2022. "A Cross-disciplinary review of product recall research: A stakeholder-stage framework," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 163(C).
    10. Fisher Ke, Jian-yu & Otto, James & Han, Chaodong, 2022. "Customer-Country diversification and inventory efficiency: Comparative evidence from the manufacturing sector during the pre-pandemic and the COVID-19 pandemic periods," Journal of Business Research, Elsevier, vol. 148(C), pages 292-303.

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