Research On Strategic Sourcing Considering Supply Risk And Process Improvement

In the trend of supply chain globalization, firms affected by many external threats(e.g., war, terrorist attacks, and natural disasters) and internal facts(e.g., machinery and equipment failure, defective products and financial problems) often have to cope with the problem of supply risks. Moreover, under intensified market competition, reducing the cost of suppliers has become an important method to improve the overall efficiency of the supply chain. How to manage and reduce supply risk with effective risk-mitigating tools at the same time of reducing production costs has been an important issue for both scholars and managers. Moreover, industrial practices show that both the supplier risk and production costs can be reduced(i.e., supply chain efficiency can be improved) through the efforts of the buyer and/or supplier. Focusing on procurement scenarios with supply risk and efficiency-improvement efforts, this dissertation explores the comparison and combination of efficiency-improvement efforts with another two risk-mitigation tools, i.e., dual sourcing and emergency sourcing, and investigates related supply chain procurement strategies. Specifically, the research contents include the following four parts.When the supplier with random yield risk can initiate effort to improve his reliability and reduce his unit production cost, this paper compares the sourcing strategies under two typical procurement models, i.e., a Stackelberg model and a bargaining model. Results show that the supplier's optimal effort and manufacturer's order quantity in the bargaining model are equal to those in the centralized decision model and are greater than those in the Stackelberg model. The supplier's wholesale price in the bargaining model is smaller than that in the Stackelberg model. The manufacturer prefers the Stackelberg model only if his bargaining power is small. Accordingly, the supplier is more eager for the Stackelberg model if his bargaining power is weak. Compared with the Stackelberg model, there is a Pareto improvement area for both the supplier and the manufacturer in the bargaining model. The above results still hold in the situation where the supplier does not exert effort. However, by contrast, the Pareto improvement area in the bargaining model becomes larger under the situation where the supplier exerts effort to improve production efficiency.Considering random yield risk and production cost uncertainty, this paper studies the optimal decisions of a manufacturer and a supplier when either of them can initiate effort endogenously to enhance the supply reliability and reduce the production cost with certain probabilities. Two dynamic programming models- the manufacture-initiated effort model and the supplier-initiated effort model- are designed separately. For each model, we analyze the impacts of the success probabilities on the optimal purchasing quantity, on the optimal effort level, on the supplier's and the manufacturer's expected profits, and on the expected total supply chain profit. By comparing the two models, we find that whether the manufacturer's optimal effort is greater than that of the supplier depends on the revenue-sharing parameter. Given the same effort level, the optimal purchasing quantity in manufacturer-initiated effort model is not less than that in supplier-initiated effort model. And the expected profit of manufacturer is higher in the manufacturer-initiated effort model, but the expected profits of the supplier and the supply chain could be higher in the supplier-initiated effort model.Under random yield risk, we compare the single-sourcing strategy with efficiency-improvement effort and the dual-sourcing strategy without effort. First, when the manufacturer is faced with two unreliable suppliers, we examine and compare the dual sourcing strategy of the manufacturer under two procurement models: a Stackelberg model and a bargaining model. Results show that the manufacturer's purchasing quantity in the bargaining model is greater than that in the Stackelberg model, but the opposite is true regarding suppliers' wholesale prices. The manufacturer's revenue is greater in the bargaining game, but the supply chain profit is smaller than that in the centralized decision model. Second, we compare the dual-sourcing strategy and the single sourcing strategy with efficiency-improvement effort. The results show that in the Stackelberg model, the manufacturer's sourcing strategy is affected by suppliers' production costs and effort costs. When the supplier is with a high effort cost and a moderate production cost, the manufacturer will choose dual sourcing even if the success probability of effort in single sourcing is high. However, in the bargaining game, the manufacturer is more likely to prefer the single sourcing strategy with efficiency-improvement effort if his bargaining power is greater.Under random disruption risk, we compare and combine the strategy of manufacturer-initiated efficiency-improvement effort and the strategy of emergency sourcing. Results show that the manufacturer is better off with manufacturer-initiated effort, emergency sourcing, or the combination of above two strategies, as compared with the situation of passively accepting of the disruption risk. When the backup supplier's cost is low, the manufacturer with an emergency sourcing strategy forges the purchasing from the unreliable prime supplier. When the cost of exerting effort increases, the manufacturer is more inclined to the emergency sourcing strategy. Furthermore, the combination of emergency sourcing and manufacturer-initiated effort is significantly better than the pure emergency sourcing strategy. When the backup supplier's cost is high, the combination strategy is superior to the manufacturer-initiated effort strategy.