Coordination mechanism for capacity reservation by considering production time,production rate and order quantity

In this paper we study the coordination of a dyadic supply chain producing a high-tech product by contracts. The product has a short life cycle and the buyer faces stochastic demands during the selling period. We consider the production time, which causes the inventory costs on supplier’s side. As the supplier builds production capacity in advance, the production rate is limited to the capacity created during the production time. In addition, we take into account the inventory cost and operational cost for the buyer. We examine the model under both full information and partial information updating situations, and propose a coordinating contract for each case. Our analysis includes the study of members’ decisions under both forced and voluntary compliance regimes. Numerical results are presented to provide more insights into the models developed and the mechanisms proposed.