Coordinating supplier׳s reorder point: A coordination mechanism for supply chains with long supplier lead time

In this paper, the issue of the upstream stochastic lead time in supply chain (SC) is investigated. A coordination mechanism is developed for reducing the harmful effect of upstream lead time. The supplier stochastic lead time can substantially harm the whole supply chain service level, especially when it is accumulated with downstream stochastic lead times. In this study, aggregation of both the supplier and the retailer stochastic lead time is analyzed in a two-stage supply chain (SC). To dampen harmful effects of a long aggregate lead time, a ‘per order extra payment’ model is developed for convincing the supplier to increase its reorder point. Numerical experiments show that coordinating the supplier׳s reorder point creates a significant profit for the whole supply chain. In addition, the proposed model is capable of optimizing the supplier׳s reorder point and fairly sharing the extra benefits. Some conditions are also extracted, under which the proposed model shows good performance.