Uptime optimization and coordination in supply chains with dual distribution channels under disruption

Disruptions in sales and distribution infrastructure–such as online platform outages, warehouse failures, and operational disruptions in retail channels–pose significant challenges to fulfillment continuity and service reliability, leading to financial losses and customer dissatisfaction. The impact of these disruptions depends on each channel’s resilience to disruption and recovery capability, which together determine its operational availability (uptime). While improving uptime levels through infrastructure investments can mitigate risks, such investments are costly and require a detailed cost-benefit analysis. This paper analyzes uptime decisions in a dual-channel supply chain consisting of direct and retail distribution channels, considering investment costs and demand shifts across channels during disruptions. We first study a decentralized structure using a game-theoretic framework in which each channel independently optimizes its uptime level. Next, we examine a centralized structure in which uptime levels are jointly selected to maximize total system profitability. Our findings indicate that centralized decisions are more profitable for the system compared to decentralized ones, potentially at the expense of one of the parties. We then propose an uptime-indexed wholesale premium contract to coordinate decisions and reveal complete profitability potential. Our findings provide insights into how firms should allocate uptime investments and manage disruption propagation across distribution channels. Notably, depending on market and cost parameters, coordination may reduce uptime levels despite higher profitability, highlighting the role of cross-channel buffering, whereby firms maintain fulfillment continuity by reallocating demand across channels rather than uniformly increasing uptime investments.