Disruption Mitigation and Pricing Flexibility
By Oben Ceryan, Bayes Business School, City, University of London, UK, oben.ceryan@city.ac.uk | Florian Lücker, Bayes Business School, City, University of London, UK, florian.lucker@city.ac.uk
Abstract
We study a firm that is exposed to random supply chain disruptions while producing a single product. During a disruption, the firm may use reserve inventory and/or reserve capacity to serve customer demand. As supply in the form of reserve inventory and reserve capacity is often lower than demand during a disruption, the firm may choose to increase the price of the product during the disruption. An increase in price reduces demand during the disruption, which may help better match supply and demand during the disruption. We find that pricing flexibility (i.e., the ability to increase the price during a disruption) may complement or substitute the operational mitigation levers of holding reserve inventory or reserve capacity. Specifically, when a firm has pricing flexibility, it may be economical to increase or decrease the use of reserve inventory or reserve capacity relative to a setting without pricing flexibility.
Frontiers in Supply Chain Finance and Risk Management
This monograph contains eight thought-leading contributions on various topics related to supply chain finance and risk management: “Disruption Mitigation and Pricing Flexibility” by Oben Ceryan and Florian Lücker. “Optimal Newsvendor IRM with Downside Risk” by Paolo Guiotto and Andrea Roncoroni. “Competitive Forward and Spot Trading Under Yield Uncertainty” by Lusheng Shao, Derui Wang, and Xiaole Wu. “The Impact of Commodity Price Uncertainty on the Economic Value of Waste-to-Energy Conversion in Agricultural Processing” by Bin Li, Onur Boyabatlı, and Buket Avcı. “Corporate Renewable Procurement” by Selvaprabu Nadarajah. “Blockchain-Based Digital Payment Obligations for Trade Finance” by Jing Hou, Burak Kazaz, and Fasheng Xu. “Long-term Service Agreement in Power Systems” by Panos Kouvelis, Hirofumi Matsuo, Yixuan Xiao, and Quan Yuan. “The Bullwhip Effect in Servicized Manufacturers” by Jiang Shenyang, Jiang Zhibin, Niu Yimeng, and Wu Jing.
Companion
Foundations and Trends® in Technology, Information and Operations Management, Volume 16, Issue 3-4 Special Issue: Frontiers in Supply Chain Finance and Risk Management
See the other articles that are also part of this special issue.