Achieving better coordination through revenue sharing and bargaining in a two-stage supply chain

Coordination is essential for improving supply chain wide performance. In this paper, we focus on a two-stage supply chain consisting of one supplier and one retailer, and in the chain, the retailer’s profit is sensitive to the supplier’s lead time, which is influenced by the supplier’s target inventory level. The coordination between the two parties is achieved through revenue sharing and bargaining in such a way that their respective profit is better than that resulted from a decentralized optimization. The key contract parameter, the revenue-sharing fraction, along with the maximum amount of monetary bargain space, is obtained under explicit and implicit information, respectively. Numerical illustrations of the contracts for various scenarios are also given.