Purchasing at a Responsive Price for Supply Resilience: Impact of Credible Quantity Threat and Supply Diversification

Posted: 13 Apr 2023

See all articles by Baozhuang Niu

Baozhuang Niu

School of Business Administration, South China University of Technology

Lingfeng Wang

School of Business Administration South China University of Technology

Nan Zhang

South China University of Technology - School of Business Administration (SBA)

Guang Xiao

Hong Kong Polytechnic University - Department of Logistics and Maritime Studies

Date Written: April 2, 2023

Abstract

Global sourcing is popular due to its ability to provide high-quality products from a global pool of suppliers. However, the COVID-19 pandemic has resulted in a high risk of delivery delays. Once such delay occurs, the overseas supplier and the buyer usually execute the purchasing contract at a responsive price subject to the force majeure clause. In this paper, we identify an interesting “credible quantity threat” caused by the responsive price contract, which serves as an effective leverage to lessen the damage from delivery delay, especially in the presence of local competition. We find that the “credible quantity threat” in a single-sourcing supply chain will induce the supplier to undercut the wholesale price and also constrain the local rival’s market share. Instead, under the widely adopted dual-sourcing strategy, the overseas supplier’s potential delivery delay engenders the price-hiking behavior of the uninfected supplier, leading the overseas supplier to increase the wholesale price as well. Our work shows why single-sourcing may be superior to dual-sourcing when firms confront overseas disruptions, and sheds light on firms’ balking at diversifying the supply.

Keywords: Supply chain resilience; Dual sourcing; Global operations; Sourcing competition.

Suggested Citation

Niu, Baozhuang and Wang, Lingfeng and Zhang, Nan and Xiao, Guang, Purchasing at a Responsive Price for Supply Resilience: Impact of Credible Quantity Threat and Supply Diversification (April 2, 2023). Available at SSRN: https://ssrn.com/abstract=4407159

Baozhuang Niu

School of Business Administration, South China University of Technology ( email )

Wushan
Guangzhou, AR Guangdong 510640
China

Lingfeng Wang

School of Business Administration South China University of Technology ( email )

Wushan
Guangzhou
China

Nan Zhang (Contact Author)

South China University of Technology - School of Business Administration (SBA) ( email )

Wushan
Guangzhou
China
13535280806 (Phone)

Guang Xiao

Hong Kong Polytechnic University - Department of Logistics and Maritime Studies ( email )

M634, Li Ka Shing Tower
The Hong Kong Polytechnic University
Hong Kong, Hung Hom, Kowloon
China

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