FROM CHOICE OF PROCUREMENT STRATEGY TO SUPPLY NETWORK CONFIGURATION: AN EVOLUTIONARY APPROACH

This study examines the complex and evolutionary nature of supply network configuration. Taking a bottom-up approach, we examine how supply network configuration at the macro-level evolves as a result of individual retailers' dynamic choice of procurement strategies at the micro-level. Employing agent-based modeling, we focus on the effects of switch cost and distributors' ordering policy on the evolution of supply network configuration. Our results show that (1) supply networks tend to evolve into a set of separate supply chains when switch cost is high and into an integrated network when switch cost is low, (2) a responsive ordering policy adopted by distributors is more conducive to the integrated network configuration than a non-responsive policy, and (3) lack of coordination among retailers in their dynamic choice of procurement strategies hurts not only the overall system performance, but also retailers themselves. More importantly, our study demonstrates the capabilities of agent-based modeling as a methodology for researching complex supply network issues.