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Configuration of flexibility strategies under supply uncertainty

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  • Xu, He
  • Zuo, Xiaolu
  • Liu, Zhixue

Abstract

In this paper, we study a buyer׳s configuration of flexibility strategies under supply uncertainty. His main supplier׳s production process is uncertain, and he can either choose pricing flexibility (setting prices depending on the available supply) or operational flexibility (requesting a contingent order from a backup supplier). As the buyer may or may not find a suitable contingent supplier ex post, we study two scenarios that the backup supplier׳s supply is infinite, and that this supply is random. We also include the factor that the main supplier may determine the wholesale price. We demonstrate that the adoption of flexibility strategies is controlled by threshold policies in different scenarios whether the main supplier determines the wholesale price or not. We also investigate how the buyer׳s attribute (finding a suitable contingent supplier) affects the configuration of flexibility strategies.

Suggested Citation

  • Xu, He & Zuo, Xiaolu & Liu, Zhixue, 2015. "Configuration of flexibility strategies under supply uncertainty," Omega, Elsevier, vol. 51(C), pages 71-82.
    • Handle: RePEc:eee:jomega:v:51:y:2015:i:c:p:71-82
    DOI: 10.1016/j.omega.2014.09.001
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