A multi‐period decision framework for manufacturing resilience against supply disruptions

Abstract

Geopolitically driven disruptions have become increasingly frequent, posing risks to global supply chains. To investigate firms' disruption mitigation strategies and their interactions, we develop a two‐period game‐theoretic model in which the pre‐disruption and post‐disruption periods are explicitly separated. Within this framework, we analyze the manufacturer's optimal inventory and backup sourcing decisions and their impact on the primary supplier. The analysis gives several counterintuitive insights. First, an increase in the disruption probability can improve the manufacturer's profit under certain conditions. Second, contracting with a backup supplier is not always optimal; in some cases, relying solely on inventory yields higher profit. Third, the introduction of a backup supplier may generate a win‐win‐win outcome for the manufacturer, the primary supplier, and the backup supplier. We further show that contracting a backup supplier improves consumer surplus and social welfare when the inventory holding cost is low, but may reduce them when it is high. Several model extensions confirm the qualitative robustness of our main insights.