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Chinese Journal of Management Science ›› 2023, Vol. 31 ›› Issue (8): 162-172.doi: 10.16381/j.cnki.issn1003-207x.2020.1967

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Sourcing and Pricing Strategies under Supply Uncertainty with Different Payment Schemes

Chong-ping CHEN1,Xiao-po ZHUO2(),Jie CHEN3   

  1. 1.School of Politics and Public Administration, South China Normal University, Guangzhou 510006, China
    2.School of Business, Sun Yat-sen University, Guangzhou 510275, China
    3.School of Science, Hainan Tropical Ocean University, Sanya 572022, China
  • Received:2020-10-19 Revised:2021-03-29 Online:2023-08-15 Published:2023-08-24
  • Contact: Xiao-po ZHUO E-mail:zhuoxp3@mail.sysu.edu.cn

Abstract:

In recent years, many companies are evacuating from China because of the increasing production costs in developing countries. This study intends to explore the relationship between shifting tides and price competition. At the same time, it analyzes whether the conclusion that is “the dual-source procurement is the optimal procurement strategy when the prices of domestic and foreign suppliers are the same as the supply uncertainty’ derived in the Cournot quantity competition model is still valid in price competition. By assuming two suppliers have identical supply prices, the firms’ sourcing and pricing strategies with two different supply sources under supply and demand uncertainty have been investigated. Previous studies on procurement strategies were mostly on basis of quantity competition. However, price competition is much more pervasive in practice. Hence, sourcing and pricing strategies under price competition need to be further studied. By employing a price competition model, this study reveals firms’ sourcing (domestic sourcing and offshore sourcing) and pricing strategies under two contrastive payment schemes: payment based on order quantity and payment based on arrival quantity. The results show that: (1) Regardless of payment schemes, the optimal purchase source decision of a company under price competition is to use domestic sources. (2) when the procurement cost is related to the order quantity, the firm sets a higher market price, (3) the firm obtains an identical profit under the two payment schemes, and (4) under price competition, firm prefers domestic sources that can respond quickly to the market. This study employs numerical experiments to verify the conclusions of the research and proposes corresponding observations. This study will provide companies with managerial insights on purchasing source decision-making and pricing under price competition, and also provide decision support for suppliers to improve their supply response speed and obtain more orders.

Key words: uncertain supply, procurement sourcing strategy, payment schemes, price competition, pricing

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