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

Kelei Xue, Ya Xu and Lipan Feng
Additional contact information
Kelei Xue: Business School, Nankai University, Tianjin 300071, China
Ya Xu: Business School, Nankai University, Tianjin 300071, China
Lipan Feng: Business School, Nankai University, Tianjin 300071, China

Sustainability, 2018, vol. 10, issue 9, 1-32

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.

Keywords: supply disruption; option purchase strategy; procurement commitment strategy; random emergency procurement price; strategy selection (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.mdpi.com/2071-1050/10/9/3293/pdf (application/pdf)
https://www.mdpi.com/2071-1050/10/9/3293/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:10:y:2018:i:9:p:3293-:d:169956

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().