Two-Stage Supply Chain Coordination with Limited Information Sharing and Setup Costs

by

Selcuk Karabati
Koc University
College of Administrative Sciences and Economics

We address the coordination problem in a two-stage supply chain with limited information sharing. The supply chain faces a constant deterministic demand which is not price-sensitive, and operates with fixed setup costs in both stages. We analyze the coordination problem under the assumption that the supplier and the buyer share customer demand data only. We show that the supplier can actually moderate a cost minimizing buyer to order in quantities different than the buyer's optimal order quantity in the traditional setting, and present a multi-break point quantity discount scheme that maximizes supplier's expected net savings. The proposed multi-break point discount scheme can be easily computed from available information while also allowing the buyer to preserve some of its private information for future dealings. We present a computational analysis of the performance of the discount scheme in terms of its coordination efficiency and allocation of the net supply chain savings.