IDEAS home Printed from https://ideas.repec.org/p/ecl/stabus/3244.html
   My bibliography  Save this paper

Disruption Risk and Optimal Sourcing in Multi-tier Supply Networks

Author

Listed:
  • Ang, Erjie

    (Stanford University)

  • Iancu, Dan A.

    (Stanford University)

  • Swinney, Robert

    (Duke University)

Abstract

We study sourcing in a supply chain with three levels: a manufacturer, Tier 1 suppliers, and Tier 2 suppliers prone to disruption from, e.g., natural disasters like earthquakes or floods. The manufacturer may not directly dictate which Tier 2 suppliers are used, but may influence the sourcing decisions of Tier 1 suppliers via contract parameters. The manufacturer's optimal strategy depends critically on the degree of overlap in the supply chain: if Tier 1 suppliers share Tier 2 suppliers, the manufacturer relies less on direct mitigation (procuring excess inventory and multisourcing in Tier 1) and more on indirect mitigation (inducing Tier 1 suppliers to mitigate disruption risk). We also show that while the manufacturer always prefers less overlap, Tier 1 suppliers may prefer a more overlapped supply chain; however, penalty contracts--in which the manufacturer penalizes Tier 1 suppliers for a failure to deliver ordered units--alleviate this coordination problem.

Suggested Citation

  • Ang, Erjie & Iancu, Dan A. & Swinney, Robert, 2014. "Disruption Risk and Optimal Sourcing in Multi-tier Supply Networks," Research Papers 3244, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:3244
    as

    Download full text from publisher

    File URL: http://www.gsb.stanford.edu/faculty-research/working-papers/disruption-risk-optimal-sourcing-multi-tier-supply-networks
    Download Restriction: no
    ---><---

    Citations

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


    Cited by:

    1. Charles D. Brummitt & Kenan Huremović & Paolo Pin & Matthew H. Bonds & Fernando Vega-Redondo, 2017. "Contagious disruptions and complexity traps in economic development," Nature Human Behaviour, Nature, vol. 1(9), pages 665-672, September.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:ecl:stabus:3244. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/gsstaus.html .

    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.