Managing Supply Chain Systems Under Partial Supply Disruption Risks: Two-Period Game Models of Responsive Pricing Decision and Inventory
Abstract
Unexpected events have led to potential disruptions in upstream supply systems. Downstream enterprises often hold inventory to mitigate disruption risks. Previous studies have rarely focused on inventory under partial supply disruption, and responsive pricing and ordering decisions in two periods, even though this combined scenario is more applicable to real economic life. Motivated by the gap, this paper studies two-period game models of responsive pricing and ordering decisions without inventory (Model N) and with inventory (Model H), and considers partial supply disruption risks in the second period. We find that, under partial supply disruption, compared with the model without inventory (Model N), the order quantity of the model with inventory (Model H) may be either lower or higher; its retail price may also be either lower or higher. When the inventory holding cost is high, the retailer and supply chain are more inclined toward no inventory (Model N). Under certain conditions, the manufacturer supports the retailer in holding inventory. Interestingly, the expected profits of the retailer and the supply chain may increase as the disruption probability increases, and this holds true even when the inventory holding cost is very high. These findings have theoretical and practical significance for the resilience of supply chain systems.