Research on OEM/ODM supply chain decision-making considering supply risk

Abstract

In a supply chain system consisting of original equipment manufacturers (OEMs), original design manufacturers (ODMs) and contract manufacturers (CMs), a multi-party Bowan model based on competition and cooperation is constructed considering upstream supply risks and equilibrium decisions are obtained. The impact of economies of scale and brand advantages on supply chain management strategies is further explored. The results show that even if CMs have supply risks, they will squeeze ODMs' profits, while OEMs can increase their profits through upstream competition. After CM supply is interrupted, when OEMs have a small brand advantage, ODMs choose to participate in terminal market competition to further increase their profits. When the brand advantage is large, ODMs focus on upstream supply to ease terminal competition. However, economies of scale have heterogeneous effects on ODM and OEM profits, and manufacturers should be wary of the possible negative effects of economies of scale. It is worth noting that the decisions of ODMs and OEMs are always in a "lose-lose" state. As a "follower", OEMs can only rely on brand advantages and other measures to ensure their own profits, while ODM decisions and social welfare can achieve a "win-win" situation. This study not only deeply deconstructs the impact of supply risk on diversified procurement, but also explores the impact of supply disruptions on manufacturers' decision-making, provides strategic guidance for manufacturers on how to make decisions in the face of risky operating environments, and provides theoretical analysis for policy management departments to deal with supply risks and improve social welfare.