Supplier Competition and its Impact on Firm's Sourcing Strategy

Qi, L., Shi, J. J., & Xu, X. (2015). Supplier competition and its impact on firm׳ s sourcing strategy. Omega, 55, 91-110.

49 Pages Posted: 23 Sep 2015

See all articles by Lian Qi

Lian Qi

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Jim (Junmin) Shi

New Jersey Institute of Technology

Xiaowei Xu

Rutgers Business School

Date Written: September 20, 2014

Abstract

Most research on firms’ sourcing strategies assumes that wholesale prices and reliability of suppliers are exogenous. It is of our interest to study suppliers’ competition on both wholesale price and reliability and firms’ corresponding optimal sourcing strategy under complete information. In particular, we study a problem in which a firm procures a single product from two suppliers, taking into account suppliers’ price and reliability differences. This motivates the suppliers to compete on these two factors. We investigate the equilibria of this supplier game and the firm’s corresponding sourcing decisions. Our study shows that suppliers’ reliability often plays a more important role than wholesale price in supplier competition and that maintaining high reliability and a high wholesale price is the ideal strategy for suppliers if multiple options exist. The conventional wisdom implies that low supply reliability and high demand uncertainty motivate dual-sourcing. We notice that, when the suppliers’ shared market/transportation network is often disrupted and demand uncertainty is high, suppliers’ competition on both price and reliability may render the sole-sourcing strategy to be optimal in some cases that depend on the format of suppliers’ cost functions. Moreover, numerical study shows that when the cost or vulnerability (to market disruptions) of one supplier increases, its profit and that of the firm may not necessarily decrease under supplier competition.

Keywords: Sourcing, supplier competition, supplier reliability

Suggested Citation

Qi, Lian and Shi, Jim (Junmin) and Xu, Xiaowei, Supplier Competition and its Impact on Firm's Sourcing Strategy (September 20, 2014). Qi, L., Shi, J. J., & Xu, X. (2015). Supplier competition and its impact on firm׳ s sourcing strategy. Omega, 55, 91-110., Available at SSRN: https://ssrn.com/abstract=2663157

Lian Qi (Contact Author)

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

1 Washington Park
Newark, NJ 07102
United States

Jim (Junmin) Shi

New Jersey Institute of Technology ( email )

University Heights
NJIT
Newark, NJ US 07102
United States
9736427027 (Phone)

HOME PAGE: http://https://web.njit.edu/~jshi/

Xiaowei Xu

Rutgers Business School ( email )

The State University of New Jersey
1 Washington Park
Newark, NJ 07102-3122
United States
9733535186 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
52
Abstract Views
510
rank
466,881
PlumX Metrics