A study on lead-time discount coordination for deteriorating products

Goods flowing through supply chains usually deteriorate. Such goods may corrupt, volatilize, and degenerate over time and thus cause the decline of their values or quantity. This study focuses on lead-time coordination for supply chains with deteriorating products which facilitates member cooperation and long-time relationships, thus increasing profit for the entire supply chain. A two-level supply chain with a single supplier and a single retailer is considered, in which the product deteriorates in the same manner for both the supplier and retailer, which is allowed to have shortages. A lead-time discount coordination strategy is used to maximize the profit of the entire supply chain by appropriately determining the optimal order quantity and lead-time. A numerical example is given, and sensitivity analyses are performed to analyze the influence of various parameters on the overall profit. The results can help managers establish long-term cooperative relationships in supply chains.

► Lead-time discount program is offered to attract retailer for ordering earlier.
► Supplier benefits from earlier orders for planning capacity and scheduling.
► Supplier shares profit gained from sufficient production preparation time.
► Retailer benefits from discount savings to buy more products for demand.
► Both sides of the supply chain can benefit from coordination.