Supply chain coordination with controllable lead time and asymmetric information

This paper considers coordinated decisions in a decentralized supply chain consisting of a vendor and a buyer with controllable lead time. We analyze two supply chain inventory models. In the first model we assume the vendor has complete information about the buyer’s cost structure. By taking both the vendor and the buyer’s individual rationalities into consideration, a side payment coordination mechanism is designed to realize supply chain Pareto dominance. In the second model we consider a setting where the buyer possesses private cost information. We design the coordination mechanism by using principal–agent model to induce the buyer to report his true cost structure. The solution procedures are also developed to get the optimal solutions of these two models. The results of numerical examples show that shortening lead time to certain extent can reduce inventory cost and the coordination mechanisms designed for both symmetric and asymmetric information situations are effective.

► A decentralized supply chain facing with controllable lead time is modeled.
► The models for both symmetric and asymmetric information scenarios are developed.
► Side payment coordination mechanisms are proposed under both symmetric and asymmetric information scenarios.
► Sensitivity and in-depth analysis are provided and managerial implications are highlighted.
► The coordination mechanisms developed can achieve a significant amount of supply chain cost savings.