Operation Strategies For Supply Chain With Typical Risks

With the increasing globalization of supply chains and the fierce competition of terminal market,firms are encountering more and more risks,which result in significant profit loss and complexity of decision-making.Thus,it is theoretically and practically significant to investigate various risk-mitigation tools and corresponding production,procurement and pricing decisions for firms in supply chain.Four risk-mitigation tools,i.e.,backup sourcing,replenishment from rival,patent licensing/sharing and pull ordering,are examined in this paper for three typical risks existing in supply chains,i.e.,supply risk,production risk and demand risk.How new tools(i.e.,replenishment from rival and patent licensing/sharing)are appropriately utilized to mitigate risks,and how traditional tools(i.e.,backup sourcing and pull ordering)can play highly efficient roles in complex operating environment are the focuses of this paper.The main contents of this study are as follows:First,considering upstream disruption risk,we investigate the optimal procurement decision for the online retailer who activates both backup sourcing strategy and drop shipping strategy.We also investigate the values of backup sourcing and drop shipping,and the substitutability or complementarity between these two strategies.We show that,for the retailer,the activation of either backup sourcing or drop shipping increases her profit,and these two strategies are substitutable.For the upstream manufacturer,the introduction of drop shipping(backup sourcing)increases(decreases)his profit,but these two strategies are complementary.For the supply chain,when the logistics cost is low or high and the backup sourcing cost is low,the backup sourcing and the drop shipping are complementary;in other cases,these two strategies are substitutable.Second,considering the upstream capacity risk,we investigate a co-opetition problem in which an original equipment manufacturer(OEM)can replenish components from his rival,the integrated device manufacturer(IDM),after the random capacity of the OEM's supplier is realized.The IDM is perfectly reliable but its unit production cost for the component is higher than the supplier.We observe that depending on the size of the realized capacity,competition either coexists with or excludes cooperation.However,from the ex ante perspective,the expected replenishment quantity of the OEM is always positive,which means that the cooperation option has a risk-mitigation effect on the OEM.Moreover,compared with the pure competition case,the presence of the cooperation option results in a decrease in the production that the IDM puts on the market(i.e.,production-contraction effect)but an increase in the order quantity obtained by the supplier(spillover effect).Based on aforementioned risk-mitigation,production-contraction and spillover effects,the cooperation option strengthens the competition between the two manufacturers.Third,considering the yield risk of high-tech firm,we investigate a supply chain with one high-tech firm and one manufacturer,where the manufacturer needs to procure a component and the firm owns the key patented technology for the component production.The firm has three strategic options.The first one is patent monopolizing;that is,the high-tech firm produces the component by himself but suffers from random yield.The second one is patent licensing;that is,the high-tech firm does not produce the component by himself,but licenses the patent to a reliable foundry and charges licensing fee.The last one is patent sharing;that is,the high-tech firm shares the patent with the foundry to insure that the shortfall order can be made up by the foundry after the random yield realization.We show that when the market potential faced by the manufacturer is small,the patent licensing is the best strategy for the high-tech firm.When the market potential is large,despite the patent sharing can mitigate supply risk,surprisingly,the high-tech firm favors patent monopolizing if his reliability is low and patent sharing if the opposite is the case.Compared with the decentralized decision case,the dominance interval of the patent licensing strategy is enlarged but that of the patent monopolizing strategy is shrunk in the centralized decision case.We also find that there exists a distortion between the optimal patent strategy for the firm and the social optimum,and this distortion strengthens with the decrease of start-up cost but weakens with the increase of supply risk.Last,considering the demand risk,we investigate the optimal procurement mechanism of a manufacturer who faces two potential suppliers with capacity constraint and private information on costs.The manufacturer can place a push order to the capacitated suppliers before demand realization and/or an expensive pull order depending on remaining capacity after that.We observe that the push order and the pull order may coexist with or exclude each other.Specifically,the manufacturer solely exercises pull order when the virtual cost of the low-cost supplier is greater than emergency production cost.When this virtual cost is not significantly high,the manufacturer exercises push order from the two suppliers solely,push order from the two suppliers with pull option,and push order from the low-cost supplier with pull option when the capacity is small,moderate,and large,respectively.Furthermore,the capacity constraint of the low-cost supplier causes a greater manufacturer's profit loss than the high-cost supplier does under symmetric information,and information asymmetry further amplifies this asymmetric effect.Compared with symmetric information,information asymmetry weakens capacity constraint for the manufacturer in terms of the total order quantity.The information asymmetry also decreases the value of push strategy but increases that of the pull strategy.