Evolutionary dynamics of supervision-compliance game on optimal pre-positioning strategies in relief supply chain management

Abstract

Emergency supply reserves are indispensable material bases in relief supply chain management. However, limited in-kind relief resources stockpiled in government-managed depositories may fail to meet the surging demand following the disaster. This paper develops an optimal pre-positioning strategy for emergency supplies with pre-purchasing contracts between local governments (LGs) and emergency supply manufacturers (ESMs) to properly address demand uncertainty in different disaster scenarios. Physical materials and production capacity are integrated into a holistic and hybrid reserve model to mitigate overstock or stock-out risks. Applying an evolutionary game-theoretic framework, contract enforcement has been extensively analyzed to avoid LGs dereliction of duty and ESMs’ breach of contract. A novel dynamic penalty mechanism is proposed to control the fluctuations in strategy choices and effectively improve ESMs’ compliance without LGs’ excessive inputs on supervision. The numerical simulation results, along with sensitivity analyses on major cost-accounting, demand characteristics, and environmental parameters, show that safety stock is the primary guarantee in most cases, while reactive stock acts as an important supplement for disasters with long-term consequences. The joint reserve policy (except for no action strategy) outperforms the price-only contract on the total reserved quantity of emergency supplies at a lower long-term average cost. The initial state and cost-benefit structures dominate the complex interplay and periodical fluctuations in the supervision-compliance game. The doomed cycle of order, disorder, and reorder in contract performance management can be well managed under the proposed dynamic penalty mechanism, which appears much more efficient and incentive-compatible in promoting both parties to fulfill their obligations.