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Decision Analysis of Backup Supplier for Supply Disruptions with Stochastic Demand

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  • 1. Faculty of Management and Economics, Dalian University of Technology, Dalian 116024, China;
    2. School of Economic and Management, Yantai University, Yantai 264005, China;
    3. School of Economic and Management, Southeast University, Nanjing 210096, China

Received date: 2014-10-09

  Revised date: 2016-03-03

  Online published: 2016-07-27

Abstract

During the last decade, to identify and mitigate supply disruptions is a topic that receives substantial management attention. Both diversifying supply sourcing including dual-sourcing and adding a backup supplier are logic ways to manage the risk of supply disruptions. There are two options execution modes. One is N mode that pushes ordering patterns, which means that the retailer orders from the backup supplier in advance under uncertain demand circumstances, the other is Y mode, push & pull ordering patterns, which means that the retailer doesn't order from backup suppliers until he knows the demand circumstance. It's successfully proved that the model is a convex programming through two options implementation strategy adopted by the retailer, and using Karush-Kuhn-Tucker conditions, a predetermined amount of backup suppliers, the closed expressions of optimal order quantity and profit expression can also be obtained. The threshold of using a backup supplier is given. By theorems and further numerical example, it can be concluded:Optimal profits is larger than primary supplier's while primary supplier has larger order quantities under N mode, under Y mode, backup supplier's capabilities predetermined amount. The impacts of model parameters on the ordering quantity from primary supplier are a little different based on the relative size of ce and c because of the execution of options. The capacity utilization of backup suppliers is highest when ce<c but lowest when ce>c under N mode, and it is in the middle level under Y mode. The retailer can obtain more profits under Y mode relative to under N mode as g, c and ce increase, or s and γ decrease.

Cite this article

LI Xin-jun, WANG Jian-jun, DA Qing-li . Decision Analysis of Backup Supplier for Supply Disruptions with Stochastic Demand[J]. Chinese Journal of Management Science, 2016 , 24(7) : 63 -71 . DOI: 10.16381/j.cnki.issn1003-207x.2016.07.008

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