Lead time variation control using reliable shipment equipment: An incentive scheme for supply chain coordination

• Coordination of service level in a two-stage SC is studied.
• Controlling lead time variability using reliable shipping equipment is explored.
• Contribution is about using lever of LT variability control for coordinating SC.
• Both retailer and supplier conditions for participation in the plan are extracted.
• Lead time variability control improves the whole SC sales volume and profitability.

In this paper, service level coordination is studied in a two-stage supply chain (SC). In the investigated model, a retailer is faced with uncertain lead time (LT) due to shipping time instability. Reducing lead time fluctuations is used as an incentive scheme to induce the retailer for participation in the coordination plan. Range of LT fluctuation which is acceptable for both parties is extracted. It is shown that using more reliable shipping equipment as an incentive could coordinate SC. Under some circumstances, the proposed model can increase SC profitability more than centralized decision making model.