Contingent Management of Supply Chain Disruption: Effects of Dual or Triple Sourcing

This paper studies a single product setting in which a firm can source from multiple suppliers. One supplier has unreliable capacity while other suppliers are reliable but have lower product quality. The addressed context (where a case study has been made) is disruptions due to sanctions which cause failure in the supply from the unreliable source. The important question which emerges here is how the companies should use different strategies for single/dual/multiple sourcing to handle those potential disruptions.
In this paper two possible strategies of dual and triple sourcing are addressed and compared, when the demand is sensitive to the price and 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, but after the disruption there would still be competition between two suppliers and the price would not increase unreasonably. The main focus of current work is on defining the share of each supplier, and finding suitable sourcing policy (single, dual or triple) to apply for different probabilities of disruption. The proposed model is applied in decision making process of a studied supply chain in automotive industry.