Coordination mechanism for the supply chain with leadtime consideration and price-dependent demand

Haoya Chen, Youhua (Frank) Chen, Chun Hung Chiu, Tsan Ming Choi, Suresh Sethi

Research output: Journal article publicationJournal articleAcademic researchpeer-review

119 Citations (Scopus)


We study a coordination contract for a supplier-retailer channel producing and selling a fashionable product exhibiting a stochastic price-dependent demand. The product's selling season is short, and the supply chain faces great demand uncertainty. We consider a scenario where the supplier reserves production capacity for the retailer in advance, and permits the retailer to place an order not exceeding the reserved capacity after a demand information update during a leadtime. We formulate a two-stage optimization problem in which the supplier decides the amount of capacity reservation in the first stage, and the retailer determines the order quantity and the retail price after observing the demand information in the second stage. We propose a three-parameter risk and profit sharing contract that coordinates the supply chain. The proposed contract permits any agreed-upon division of the supply-chain profit between the channel members.
Original languageEnglish
Pages (from-to)70-80
Number of pages11
JournalEuropean Journal of Operational Research
Issue number1
Publication statusPublished - 16 May 2010


  • Information updating
  • Leadtime
  • Newsvendor problem
  • Price-dependent demand
  • Return policy
  • Risk and profit sharing
  • Supply chain coordination

ASJC Scopus subject areas

  • Modelling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management


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