Consumer Stockpiling and Retailer Mitigation Strategies under Supply Disruption

The aim of this project is to build an analytical framework to understand consumer stockpiling behaviors and retailer mitigation strategies under supply disruption risks. Supply disruption refers to the interruption of normal supply of goods due to various causes such as industrial accidents, natural disasters, labor strikes, and terrorist attacks. An industrial survey shows that 66% of supply chain managers consider supply interruption as one of their most significant concerns among all the supply chain related risks.Facing supply disruption risks, retailers and consumers may take active hedging actions instead of passively accepting whatever happens. For instance, consumers often stockpile in the events of supply disruption. Common disruption management strategies of retailers include stockpiling inventory, diversifying supply, contingent sourcing, adjusting price, imposing limiting-quote policy, and improving supply reliability. The interaction between consumers' stockpiling decisions and retailers' disruption management strategies is quite complex. First, supply disruption may lead to consumer stockpiling. Consumer stockpiling may further exacerbate the consequences of supply disruption, as large amounts of stockpiling may lead to substantial stock-out, which may induce more customers to stockpile. Second, consumer stockpiling may happen due to the "fear' of supply shortage instead of actual supply disruption, due to reasons such as incomplete information and false belief about the supply availability. Third, retailer decisions such as increasing price, limiting supply, and imposing purchasing quota can greatly affect consumer behaviors.Due to the tight coupling and complex relationships, it is natural to jointly study the decisions of consumers and retailers under supply disruption. Unfortunately, the existing literature in this area is rare.The goal of this project is to build a conceptually unifying, mathematically rigorous, and practically relevant framework for analyzing the interaction between retailers' disruption management strategies and the consumers' stockpiling behaviors, in both monopoly and oligopoly markets. We will also explore useful guidelines for governments and non-profit organizations to deal with large-scale supply disruptions.The PI and Co-Is have strong research expertise in related research areas and have obtained interesting preliminary results. For instance, we find that ignoring consumer decisions under supply disruption could lead to substantial cost for retailers (as large as 25% profit loss). Furthermore, the cost is most significant when the risk of supply disruption is moderate. We also show that facing strategic consumers, the retailer may not always benefit from a limiting-quota policy.