40 Optimal Mechanism of Global Supply Chain with Disruption

Under the reversion of globalization, many retailers diversify their supply disruption risk by sourcing from multiple suppliers. In this paper I investigate the sourcing strategy of a retailer and the pricing strategies of two suppliers in a supply chain with disruption. I characterize the sourcing strategies of the retailer in a decentralized system and derive a sufficient condition for the existence of an equilibrium price in the system when the suppliers are competitive. Based on the assumption of a uniform demand distribution, I obtain an explicit form of the solutions and finally we devise a coordination mechanism to maximize the profits of both suppliers.