Dual sourcing hurts supply chain viability? The value of brand-owners’ cooperation under single sourcing

Abstract

In the post-pandemic era, maintaining supply chain viability under long-term crises has received increasing attention. Conventional wisdom suggests that diversifying the supply can effectively enhance the viability performance. However, recent business practices, such as Volkswagen's cooperation with XPENG, challenge this intuition by reducing supply diversification. This study therefore examines the cons and pros of two competing brand-owners’ cooperation for the improvement of supply chain viability. We utilize two commonly used indexes, namely, the Risk Loss Index and the Fulfillment Rate Index, to assess the impact of brand-owners’ cooperation. We explore three scenarios: (1) Scenario N, where each brand-owner chooses the non-cooperation strategy and hence, procures from their exclusive supplier; (2) Scenario Y, where both brand-owners choose the cooperation strategy and procure a common component from the same supplier; and (3) Scenario H, where brand-owners choose dual sourcing strategy and procure crosswise from two upstream suppliers. It seems that Scenario H enables stable supply and hedges the supply risk by dual-sourcing. Interestingly, our findings indicate that Scenario Y where brand-owners cooperate on sourcing from a common supplier can be the most effective, while dual sourcing in Scenario H may not always lead to better performance of supply chain viability.