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Flexible strategies under supply disruption: the interplay between contingent sourcing and responsive pricing

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  • Yanjun Wang
  • Yugang Yu

Abstract

Due to possible supply disruptions because of a low-cost unreliable supplier, a firm may use a high-cost reliable supplier as an additional regular supplier (dual sourcing) or an emergency backup supplier with an extra emergency cost (contingent sourcing). We consider the firm's sourcing problem when the pricing decision is made before any supply uncertainty is resolved (committed pricing) or after the supply state is realised (responsive pricing). By comparing the relative value of responsive pricing in contingent sourcing to that in dual sourcing, we study the relationship between contingent sourcing and responsive pricing in mitigating supply disruption risks. We show that the emergency cost and potential lost sales caused by disruption probability jointly impact the interplay of these two strategies. More specifically, when the emergency cost is low and the potential lost sales are lower under contingent sourcing than that under dual sourcing, contingent sourcing and responsive pricing are substitutes; otherwise, they are complements. Furthermore, we examine how disrupted capacity, i.e. the quantity that the unreliable supplier can deliver when disrupted, impacts the interplay, and find that the probability of the substitution relationship becomes higher when the disrupted capacity increases. We also find that under committed pricing, contingent sourcing is not optimal for any value of disruption probability when the emergency cost is high, a phenomenon that does not exist under responsive pricing.

Suggested Citation

  • Yanjun Wang & Yugang Yu, 2020. "Flexible strategies under supply disruption: the interplay between contingent sourcing and responsive pricing," International Journal of Production Research, Taylor & Francis Journals, vol. 58(16), pages 4829-4850, July.
    • Handle: RePEc:taf:tprsxx:v:58:y:2020:i:16:p:4829-4850
    DOI: 10.1080/00207543.2020.1722326
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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. Hasin Md. Muhtasim Taqi & Humaira Nafisa Ahmed & Sumit Paul & Maryam Garshasbi & Syed Mithun Ali & Golam Kabir & Sanjoy Kumar Paul, 2020. "Strategies to Manage the Impacts of the COVID-19 Pandemic in the Supply Chain: Implications for Improving Economic and Social Sustainability," Sustainability, MDPI, vol. 12(22), pages 1-25, November.
    3. Paul, Sanjoy Kumar & Chowdhury, Priyabrata & Moktadir, Md. Abdul & Lau, Kwok Hung, 2021. "Supply chain recovery challenges in the wake of COVID-19 pandemic," Journal of Business Research, Elsevier, vol. 136(C), pages 316-329.
    4. Md. Tarek Chowdhury & Aditi Sarkar & Sanjoy Kumar Paul & Md. Abdul Moktadir, 2022. "A case study on strategies to deal with the impacts of COVID-19 pandemic in the food and beverage industry," Operations Management Research, Springer, vol. 15(1), pages 166-178, June.
    5. Gupta, Varun & Ivanov, Dmitry & Choi, Tsan-Ming, 2021. "Competitive pricing of substitute products under supply disruption," Omega, Elsevier, vol. 101(C).
    6. Maria Concetta Carissimi & Lorenzo Bruno Prataviera & Alessandro Creazza & Marco Melacini & Fabrizio Dallari, 2023. "Blurred lines: the timeline of supply chain resilience strategies in the grocery industry in the time of Covid-19," Operations Management Research, Springer, vol. 16(1), pages 80-98, March.
    7. Yanting Huang & Benrong Zheng & Zongjun Wang, 2023. "Supplier–remanufacturing and manufacturer–remanufacturing in a closed-loop supply chain with remanufacturing cost disruption," Annals of Operations Research, Springer, vol. 324(1), pages 61-92, May.
    8. Yao, Yao & Zhang, Jianxiong & Fan, Xiaoqing, 2022. "Strategic pricing: An anti-encroachment policy of retailer with uncertainty in retail service," European Journal of Operational Research, Elsevier, vol. 302(1), pages 144-157.
    9. Dong, Binwei & Tang, Wansheng & Zhou, Chi & Ren, Yufei, 2021. "Is dual sourcing a better choice? The impact of reliability improvement and contract manufacturer encroachment," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 149(C).
    10. Yuheng Ren & Wenliang Bian & Haicheng Li & Xiaxia Ma, 2023. "Ordering Decisions with an Unreliable Supplier under the Carbon Cap-and-Trade System," Sustainability, MDPI, vol. 15(24), pages 1-23, December.

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