A mathematical model for a capacity reservation contract with backup sourcing

The recent upsurge in disruptive events globally has emphasised the importance of resilience in supply chain management. In the current complex global environment, the need of strategic sourcing, fostering long-term relationships, implementing risk-sharing mechanisms, and ensuring mutually beneficial outcomes for all members of supply chain networks have gained significant attention. In this paper, we propose a capacity reservation contract for a supply chain network consisting of a retailer, a main supplier, and a backup supplier. This dual sourcing model serves as a reactive resilience strategy that balances the trade-off between flexibility and redundancy. The proposed model makes a valuable contribution to academic literature by providing unique optimal solutions for the reservation capacities of the retailer and the constructed capacities of the suppliers. Additionally, sensitivity analysis has been conducted to examine the robustness of the model and assess the impact of contract input parameters on the decision variables.