Coordinating contingent assistance of lateral suppliers under disruption

Abstract

This paper focuses on coordinating contingent assistance between two lateral suppliers controlled by a central firm, when one supplier is exposed to supply disruption. By comparing two scenarios where the central firm can/cannot coordinate contingent assistance, we find the coordination of contingent assistance is more efficient, thus the central firm should do that. In the scenario without coordination, if the holding cost of the disrupted supplier is low, while the opportunity cost of the reliable supplier is high relatively, allowing the reliable supplier to hold decision power of assistance price can generate more assistance quantity for the disrupted supplier and bring more profits for the central firm. However, if the holding cost is high, and the opportunity cost is low relatively, the disrupted supplier can receive more assistance quantity, and the central firm can get more profits, by letting the disrupted supplier have the power to decide assistance price.