Disturbance in Multitier Supply Chain Under Competition

Abstract

Disturbances in production along with volatile demand have raised concerns over shortfalls in the global supply chain and prompted the need to build a more diversified supply chain with competitive suppliers. This research investigates the impact of disturbances on a two-tier supply chain network with asymmetric competing firms. We establish the equilibrium in a unique structure that represents the maximum set of profitable upstream supply paths achievable through competition and exhibits stability under specific conditions. We evaluate the efficiency of the supply chain configuration by a shortfall problem and solve it with an adapted pseudoflow algorithm that efficiently identifies the mismatches between shortfalls and capacity surpluses in the multitier network. The parametric analysis reveals that the disturbance loss can be significantly offset by supplier competition, although the marginal benefit of competition decreases rapidly with the number of suppliers. Furthermore, shortfalls could be magnified by network asymmetries that increase configuration inefficiency, and supply chain performance could be improved by pushing high-cost firms to cease production. Simulation results indicate that the supply chain with a moderate level of competition and a balanced configuration can be robust against disturbance and demand volatility.