Information value versus flexibility cost: Comparison of dual sourcing and artificial intelligence sourcing for resilient supply.

Abstract

In global trade practices, varying inspection and quarantine standards frequently cause import disruptions. To manage such customs risk, artificial intelligence (AI)-based intelligent sourcing strategy and traditional dual-sourcing strategy are two widely used strategies to guarantee supply resilience. In this study, we formulate the main trade-offs to adopt AI sourcing, including the information analytics value, the increased flexibility cost, and the altered competition/cooperation structure among the stakeholders. We find that the importer would prefer the AI-sourcing strategy when the customs disruption probability is high, and the local production cost is moderate. Moreover, the cost-efficiency of the AI-sourcing strategy is usually lower than the expectation due to the supplier's pricing behavior. When it comes to the resilience indicator evaluation, we find that, surprisingly, the importer is more likely to be cost-oriented rather than resilience-oriented. Therefore, pursuing resilience cannot be always attractive but low cost can. Even though the advent of AI sourcing will not change this insight.