Event Details

Dr Florian Lücker of Bayes Business School, City, University of London will present a seminar to the Management Science Department

Abstract: We study the impact of supply disruptions in settings where future demand depends on current sales. We consider a multi-period setting with demand in each period a multiple of sales in the previous period. The OEM can obtain supply from a reliable (not subject to disruption) but expensive supplier and an unreliable (subject to disruption) but cheaper supplier. We find that when supply disruption can decrease current sales and future demand, for a range of disruption probabilities, the use of the unreliable supplier for risk mitigation becomes more attractive as the probability of disruption increases. We show that our findings continue to hold as various conditions in our basic model are relaxed. Our findings suggest that many firms may find it optimal to appropriately increase reliance on the unreliable supplier for post COVID risk mitigation, instead of increasing use of a reliable supplier.

Link to paper:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3866213