Supply chain coordination model with controllable lead time and service level constraint

We consider the coordination issue in a decentralized supply chain composed of a vendor and a buyer in this paper. The vendor offers a single product to the buyer who is faced with service level constraint. In addition, lead time can be reduced by added crashing cost. We analyze two supply chain inventory models. The first one is developed under decentralized mode based on Stackelberg model, the other one is developed under centralized mode of the integrated supply chain. The solution procedures are also provided to get the optimal solutions of these two models. Finally, a price discount mechanism is proposed to induce both the vendor and the buyer to accept the centralized model. The feasibility and efficiency of the proposed models are manifested by numerical examples and some managerial implications are highlighted.

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