In an era characterized by frequent global supply chain disruptions, manufacturers increasingly explore strategies to safeguard operational continuity, including equity participation in upstream suppliers. This paper investigates partial vertical ownership (PVO), defined as a manufacturer’s partial equity stake in an upstream supplier that supports strategic cooperation and risk information access without full vertical integration. We model a single manufacturer, an unreliable primary supplier with private disruption risk information, and a reliable backup supplier. Relative to a non-ownership (NO) baseline, PVO is modeled as a benchmark governance mechanism that can improve the manufacturer’s information set before backup capacity is reserved. The analytical results show that expected profit is convex in the unit stockout penalty under the specified convex capacity cost structure and deterministic demand assumptions. They also show that the information dividend from PVO is governed by the variance of the disruption probability, while its economic magnitude depends on the scale of stockout losses, backup procurement costs, and the equity return condition. By benchmarking PVO against a clarified option contract strategy, we identify parameter regions in which equity-based information access can outperform contractual hedging. The study reframes PVO as a conditional operational hedging instrument and clarifies the assumptions under which it can strengthen supply chain resilience.
Gong et al. (Mon,) studied this question.