Mitigating Supply Uncertainty: The Interplay Between Diversification and Pricing

• 成果类型: Article
• 署名作者: Li, Tao; Sethi, Suresh P.; Zhang, Jun
• 署名单位: Santa Clara University; University of Texas System; University of Texas Dallas; Fudan University
• 刊物名称: PRODUCTION AND OPERATIONS MANAGEMENT
• ISSN/ISSBN: 1059-1478
• DOI: 10.1111/poms.12656
• 发表日期: 2017
• 页码: 369-388
• 关键词: Supply uncertainty; supply diversification; supply reliability; pricing

摘要

We consider a firm's sourcing problem from one reliable supplier and one unreliable supplier in two price-setting scenarios. In the committed pricing scenario, the firm makes the pricing decision before the supply uncertainty is resolved. In the responsive pricing scenario, the firm ' s pricing decision is made after the supply uncertainty is resolved. For the committed pricing scenario, we develop a condition on supply uncertainty that guarantees the unimodality of the firm's objective function. By comparing the firm ' s optimal diversification decisions in the two pricing scenarios, we examine the interplay of supply diversification strategy and responsive pricing strategy in mitigating supply uncertainty. While both strategies are effective in mitigating supply uncertainty, we show that they are not necessarily substitutes. The relationship between these two strategies depends on two adverse effects caused by supply uncertainty: the lost-revenue effect and the lost-goodwill effect. More specifically, when the lost-revenue effect dominates the lost-goodwill effect, these two strategies are complements; otherwise, they are substitutes. Furthermore, we examine the impact of market size, price sensitivity, supplier reliability, and failure rebate on the interplay between these two strategies, and discuss the implications of our results. Finally, we extend our analysis to the case of two unreliable suppliers and show that the insights regarding the interplay between diversification and pricing continue to hold.