IDEAS home Printed from https://ideas.repec.org/a/bla/popmgt/v29y2020i1p9-23.html
   My bibliography  Save this article

Product Sourcing and Distribution Strategies under Supply Disruption and Recall Risks

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/poms.13065
    Download Restriction: no
    File URL: https://libkey.io/10.1111/poms.13065?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Long Gao & Douglas J. Thomas & Michael B. Freimer, 2014. "Optimal Inventory Control with Retail Pre-Packs," Production and Operations Management, Production and Operations Management Society, vol. 23(10), pages 1761-1778, October.
    2. Narendra Agrawal & Steven Nahmias, 1997. "Rationalization Of The Supplier Base In The Presence Of Yield Uncertainty," Production and Operations Management, Production and Operations Management Society, vol. 6(3), pages 291-308, September.
    3. Volodymyr Babich & Apostolos N. Burnetas & Peter H. Ritchken, 2007. "Competition and Diversification Effects in Supply Chains with Supplier Default Risk," Manufacturing & Service Operations Management, INFORMS, vol. 9(2), pages 123-146, October.
    4. Soo-Haeng Cho & Xin Fang & Sridhar Tayur, 2015. "Combating Strategic Counterfeiters in Licit and Illicit Supply Chains," Manufacturing & Service Operations Management, INFORMS, vol. 17(3), pages 273-289, July.
    5. Awi Federgruen & Nan Yang, 2009. "Optimal Supply Diversification Under General Supply Risks," Operations Research, INFORMS, vol. 57(6), pages 1451-1468, December.
    6. Brian Tomlin, 2009. "Impact of Supply Learning When Suppliers Are Unreliable," Manufacturing & Service Operations Management, INFORMS, vol. 11(2), pages 192-209, August.
    7. Ravi Anupindi & Ram Akella, 1993. "Diversification Under Supply Uncertainty," Management Science, INFORMS, vol. 39(8), pages 944-963, August.
    8. Brian Tomlin, 2006. "On the Value of Mitigation and Contingency Strategies for Managing Supply Chain Disruption Risks," Management Science, INFORMS, vol. 52(5), pages 639-657, May.
    9. Volodymyr Babich & Christopher S. Tang, 2012. "Managing Opportunistic Supplier Product Adulteration: Deferred Payments, Inspection, and Combined Mechanisms," Manufacturing & Service Operations Management, INFORMS, vol. 14(2), pages 301-314, April.
    10. Zhixi Wan & Damian R. Beil, 2014. "Bid-Taker Power and Supply Base Diversification," Manufacturing & Service Operations Management, INFORMS, vol. 16(2), pages 300-314, May.
    11. Roger A. Dahlgran & Dean G. Fairchild, 2002. "The demand impacts of chicken contamination publicity-a case study," Agribusiness, John Wiley & Sons, Ltd., vol. 18(4), pages 459-474.
    12. Thomas Marsh & Ted Schroeder & James Mintert, 2004. "Impacts of meat product recalls on consumer demand in the USA," Applied Economics, Taylor & Francis Journals, vol. 36(9), pages 897-909.
    13. Gary H. Chao & Seyed M. R. Iravani & R. Canan Savaskan, 2009. "Quality Improvement Incentives and Product Recall Cost Sharing Contracts," Management Science, INFORMS, vol. 55(7), pages 1122-1138, July.
    14. Jing-Sheng Song & Paul Zipkin, 2009. "Inventories with Multiple Supply Sources and Networks of Queues with Overflow Bypasses," Management Science, INFORMS, vol. 55(3), pages 362-372, March.
    15. Maqbool Dada & Nicholas C. Petruzzi & Leroy B. Schwarz, 2007. "A Newsvendor's Procurement Problem when Suppliers Are Unreliable," Manufacturing & Service Operations Management, INFORMS, vol. 9(1), pages 9-32, August.
    16. Fleischmann, Moritz & Bloemhof-Ruwaard, Jacqueline M. & Dekker, Rommert & van der Laan, Erwin & van Nunen, Jo A. E. E. & Van Wassenhove, Luk N., 1997. "Quantitative models for reverse logistics: A review," European Journal of Operational Research, Elsevier, vol. 103(1), pages 1-17, November.
    17. Sunil Chopra & Gilles Reinhardt & Usha Mohan, 2007. "The importance of decoupling recurrent and disruption risks in a supply chain," Naval Research Logistics (NRL), John Wiley & Sons, vol. 54(5), pages 544-555, August.
    18. Huaxia Rui & Guoming Lai, 2015. "Sourcing with Deferred Payment and Inspection under Supplier Product Adulteration Risk," Production and Operations Management, Production and Operations Management Society, vol. 24(6), pages 934-946, June.
    19. Yimin Wang & Wendell Gilland & Brian Tomlin, 2010. "Mitigating Supply Risk: Dual Sourcing or Process Improvement?," Manufacturing & Service Operations Management, INFORMS, vol. 12(3), pages 489-510, September.
    20. Qi Feng & Justin Jia & J. George Shanthikumar, 2019. "Dynamic Multisourcing with Dependent Supplies," Management Science, INFORMS, vol. 67(6), pages 2770-2786, June.
    21. Burcu Tan & Qi Feng & Wen Chen, 2016. "Dual Sourcing Under Random Supply Capacities: The Role of the Slow Supplier," Production and Operations Management, Production and Operations Management Society, vol. 25(7), pages 1232-1244, July.
    22. Lawrence V. Snyder & Zümbül Atan & Peng Peng & Ying Rong & Amanda J. Schmitt & Burcu Sinsoysal, 2016. "OR/MS models for supply chain disruptions: a review," IISE Transactions, Taylor & Francis Journals, vol. 48(2), pages 89-109, February.
    23. Sammi Yu Tang & Panos Kouvelis, 2011. "Supplier Diversification Strategies in the Presence of Yield Uncertainty and Buyer Competition," Manufacturing & Service Operations Management, INFORMS, vol. 13(4), pages 439-451, October.
    24. Shanshan Hu & Zhixi Wan & Qing Ye & Wei Chi, 2017. "Supplier Behavior in Capacity Investment Competition: An Experimental Study," Production and Operations Management, Production and Operations Management Society, vol. 26(2), pages 273-291, February.
    25. Qi Feng & Suresh P. Sethi & Houmin Yan & Hanqin Zhang, 2006. "Are Base-Stock Policies Optimal in Inventory Problems with Multiple Delivery Modes?," Operations Research, INFORMS, vol. 54(4), pages 801-807, August.
    26. Carlos F. Daganzo, 1984. "The Distance Traveled to Visit N Points with a Maximum of C Stops per Vehicle: An Analytic Model and an Application," Transportation Science, INFORMS, vol. 18(4), pages 331-350, November.
    27. Brian Tomlin & Yimin Wang, 2005. "On the Value of Mix Flexibility and Dual Sourcing in Unreliable Newsvendor Networks," Manufacturing & Service Operations Management, INFORMS, vol. 7(1), pages 37-57, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jing Chen & Hang Wei & Lei Xie, 2022. "Mitigating Product Quality Risk under External Financial Pressure: Inspection, Insurance, and Cash/Collateralized Loan," Production and Operations Management, Production and Operations Management Society, vol. 31(1), pages 304-317, January.
    2. 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.
    3. 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).
    4. Li, Yi & Shou, Biying, 2021. "Managing supply risk: Robust procurement strategy for capacity improvement," Omega, Elsevier, vol. 102(C).
    5. 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.
    6. 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).
    7. 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).
    8. 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).
    9. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Svoboda, Josef & Minner, Stefan & Yao, Man, 2021. "Typology and literature review on multiple supplier inventory control models," European Journal of Operational Research, Elsevier, vol. 293(1), pages 1-23.
    2. Seung Hwan Jung, 2020. "Offshore versus Onshore Sourcing: Quick Response, Random Yield, and Competition," Production and Operations Management, Production and Operations Management Society, vol. 29(3), pages 750-766, March.
    3. Ming Zhao & Nickolas Freeman & Kai Pan, 2023. "Robust Sourcing Under Multilevel Supply Risks: Analysis of Random Yield and Capacity," INFORMS Journal on Computing, INFORMS, vol. 35(1), pages 178-195, January.
    4. Huang, He & Xu, Hongyan, 2015. "Dual sourcing and backup production: Coexistence versus exclusivity," Omega, Elsevier, vol. 57(PA), pages 22-33.
    5. Erjie Ang & Dan A. Iancu & Robert Swinney, 2017. "Disruption Risk and Optimal Sourcing in Multitier Supply Networks," Management Science, INFORMS, vol. 63(8), pages 2397-2419, August.
    6. Qi Feng & Justin Jia & J. George Shanthikumar, 2019. "Dynamic Multisourcing with Dependent Supplies," Management Science, INFORMS, vol. 67(6), pages 2770-2786, June.
    7. Hong, Yoo Suk & Huh, Woonghee Tim & Kang, Changmuk, 2017. "Sourcing assemble-to-order inventories under supplier risk uncertainty," Omega, Elsevier, vol. 66(PA), pages 1-14.
    8. Wen Chen & Burcu Tan, 2022. "Dynamic procurement from multiple suppliers with random capacities," Annals of Operations Research, Springer, vol. 317(2), pages 509-536, October.
    9. Yuan, Zhennan & Chen, Frank Y. & Yan, Xiaoming & Yu, Yugang, 2020. "Operational implications of yield uncertainty in mergers and acquisitions," International Journal of Production Economics, Elsevier, vol. 219(C), pages 248-258.
    10. Jiri Chod & Nikolaos Trichakis & Gerry Tsoukalas, 2019. "Supplier Diversification Under Buyer Risk," Management Science, INFORMS, vol. 65(7), pages 3150-3173, July.
    11. Gökçe Esenduran & John V. Gray & Burcu Tan, 2022. "A Dynamic Analysis of Supply Chain Risk Management and Extended Payment Terms," Production and Operations Management, Production and Operations Management Society, vol. 31(3), pages 1394-1417, March.
    12. Qi, Lian, 2013. "A continuous-review inventory model with random disruptions at the primary supplier," European Journal of Operational Research, Elsevier, vol. 225(1), pages 59-74.
    13. Süleyman Demirel & Roman Kapuscinski & Man Yu, 2018. "Strategic Behavior of Suppliers in the Face of Production Disruptions," Management Science, INFORMS, vol. 64(2), pages 533-551, February.
    14. Brian Tomlin, 2009. "Disruption‐management strategies for short life‐cycle products," Naval Research Logistics (NRL), John Wiley & Sons, vol. 56(4), pages 318-347, June.
    15. Pritee Ray & Mamata Jenamani, 2016. "Sourcing decision under disruption risk with supply and demand uncertainty: A newsvendor approach," Annals of Operations Research, Springer, vol. 237(1), pages 237-262, February.
    16. Gu, Chaocheng & Wei, Juan & Wei, Ying, 2021. "Sourcing under competition: The implications of supplier capital constraint and supply chain co-opetition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 149(C).
    17. Xiang Li, 2017. "Optimal procurement strategies from suppliers with random yield and all-or-nothing risks," Annals of Operations Research, Springer, vol. 257(1), pages 167-181, October.
    18. Tao Lu & Jan C. Fransoo & Chung-Yee Lee, 2017. "Carrier Portfolio Management for Shipping Seasonal Products," Operations Research, INFORMS, vol. 65(5), pages 1250-1266, October.
    19. Sarah Parlane & Ying-Yi Tsai, 2017. "Optimal Management of Supply Disruptions when Contracting with Unreliable, Risk-averse, Suppliers," Working Papers 201714, School of Economics, University College Dublin.
    20. Panos Kouvelis & Guang Xiao & Nan Yang, 2021. "Role of Risk Aversion in Price Postponement Under Supply Random Yield," Management Science, INFORMS, vol. 67(8), pages 4826-4844, August.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:popmgt:v:29:y:2020:i:1:p:9-23. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1937-5956 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.