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Sustainability 2018, 10(9), 3293; https://doi.org/10.3390/su10093293

Managing Procurement for a Firm with Two Ordering Opportunities under Supply Disruption Risk

Business School, Nankai University, Tianjin 300071, China
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Received: 17 July 2018 / Revised: 27 August 2018 / Accepted: 12 September 2018 / Published: 14 September 2018
(This article belongs to the Special Issue Sustainable Supply Chain System Design and Optimization)

Abstract

Supply disruption is a common phenomenon in industry, which brings destructive effects to downstream firms and damages the sustainability of the supply chain. To mitigate the supply disruption risk, the authors investigate two types of procurement strategies for a firm with two ordering opportunities. Through establishing Stackelberg game models, the authors drive the supplier’s optimal production, and the firm’s optimal procurement and replenishment strategies under the option purchase (OP) strategy and the procurement commitment (PC) strategy, respectively. The findings show that, under both types of strategies, the firm’s procurement follows a “threshold” principle. Moreover, the firm’s procurement quantity can be represented by two newsvendor solutions. A lower option price or option exercise price benefits the firm, while it damages the supplier. The supplier benefits from a higher mean value (MV) of emergency procurement price and the firm benefits from a lower market demand variability. Counter-intuitively, a lower MV of the emergency procurement price is not always beneficial to the firm. A higher market demand variability could be beneficial to the supplier under the PC strategy. The firm should first choose the PC strategy and then change to the OP strategy as the disruption risk increases. View Full-Text
Keywords: supply disruption; option purchase strategy; procurement commitment strategy; random emergency procurement price; strategy selection supply disruption; option purchase strategy; procurement commitment strategy; random emergency procurement price; strategy selection
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).
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Xue, K.; Xu, Y.; Feng, L. Managing Procurement for a Firm with Two Ordering Opportunities under Supply Disruption Risk. Sustainability 2018, 10, 3293.

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