Supply chain reliability and the role of individual suppliers

We study a one-period supply chain problem consisting of numerous suppliers delivering a homogenous good. Individual supply is uncertain and may exhibit dependencies with other suppliers as well as with the stochastic demand. Assuming that reliability of supply represents an economic value for the customer that shall be paid accordingly, we first derive an analytical solution for the contribution of an individual supplier to supply chain reliability. Second, applying concepts from cooperative game-theory, we propose a payoff scheme based on marginal contributions that explicitly accounts for the statistical properties of the problem. A number of desirable properties is thus achieved, including static efficiency as well as efficient investment incentives. Lastly, in order to demonstrate the relevance and applicability of the concepts developed, we consider the example of payoffs for reliability in power systems that are increasingly penetrated by interdependent variable renewable energies. We investigate empirical data on wind power in Germany, thereby confirming our analytical findings. In practice, our approach could be applied to design and organize supply chains and their reliability more efficiently. For instance, in the field of power systems, the approach could improve designs of capacity or renewable support mechanisms.