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Strategic cooperation with a backup supplier for the mitigation of supply disruptions

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  • Zhe Yin
  • Chen Wang

Abstract

We study optimal sourcing decisions for a firm with a dedicated supplier and a backup supplier. The dedicated supplier charges a lower wholesale price but faces a potential disruption risk. The backup supplier is assumed to be perfectly reliable but charges a higher wholesale price. The primary question we address is how the firm should cooperate with the backup supplier to hedge against the disruption risk. We consider three common cooperation options: advance purchase, reservation and contingency purchase. Our basic results show that the firm should choose advance purchase strategy if the disruption probability is high, while contingency purchase strategy benefits the firm more if the disruption probability is low. Under an intermediate disruption probability, the firm should choose reservation strategy only if the reservation fee is sufficiently low. Then, we explore the optimal backup strategy under partial disruption risk. The results show that the advance purchase and the reservation strategy should be adopted more widely when the dedicated supplier guarantees a relatively high yield rate after disruption.

Suggested Citation

  • Zhe Yin & Chen Wang, 2018. "Strategic cooperation with a backup supplier for the mitigation of supply disruptions," International Journal of Production Research, Taylor & Francis Journals, vol. 56(12), pages 4300-4312, June.
    • Handle: RePEc:taf:tprsxx:v:56:y:2018:i:12:p:4300-4312
    DOI: 10.1080/00207543.2017.1410246
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    Cited by:

    1. Zheng, Meimei & Dong, Shuangshuang & Zhou, Yaoming & Choi, Tsan-Ming, 2023. "Sourcing decisions with uncertain time-dependent supply from an unreliable supplier," European Journal of Operational Research, Elsevier, vol. 308(3), pages 1365-1379.
    2. Dmitry Ivanov, 2022. "Viable supply chain model: integrating agility, resilience and sustainability perspectives—lessons from and thinking beyond the COVID-19 pandemic," Annals of Operations Research, Springer, vol. 319(1), pages 1411-1431, December.
    3. Aghajani, Mojtaba & Ali Torabi, S. & Altay, Nezih, 2023. "Resilient relief supply planning using an integrated procurement-warehousing model under supply disruption," Omega, Elsevier, vol. 118(C).
    4. Cagri Gurbuz, Mustafa & Yurt, Oznur & Ozdemir, Sena & Sena, Vania & Yu, Wantao, 2023. "Global supply chains risks and COVID-19: Supply chain structure as a mitigating strategy for small and medium-sized enterprises," Journal of Business Research, Elsevier, vol. 155(PB).
    5. Lipika Bhattacharya & Ayan Chatterjee & Debmallya Chatterjee, 2023. "Critical Enablers that Mitigate Supply Chain Disruption: A Perspective from Indian MSMEs," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 48(1), pages 42-63, February.

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