Contingent management of supply chain disruption: Effects of dual or triple sourcing

This paper studies a single product setting in which a firm can be sourced from multiple suppliers. One supplier has an unreliable capacity, while others are reliable but have lower product quality. The addressed context is disruptions due to sanctions, which cause failure in supply from unreliable sources. The important question which emerges here is, “how should companies use different strategies of single/dual/multiple sourcing to handle those potential disruptions?” In this paper, these strategies are addressed and compared, when the demand is sensitive to price and the level of supply risk. Dual sourcing provides the firm with the opportunity of rerouting (from a low quality supplier) after disruption. However, problems of monopoly rise after the disruption, and the buying firm lose bargaining power. Whereas, in triple sourcing, the setup cost could be higher, after the disruption, there would still be competition between two suppliers, and the price would not increase unreasonably. The main focus of the current work is on defining the share of each supplier, and finding suitable sourcing policies (single, dual or triple) to be applied to different probabilities of disruption. The proposed model is applied in the decision making process of a studied supply chain in the automotive industry.