Benefit of Supply Chain Coordination

Abstract

In this paper, we deal with a supply chain in which an assembler

orders parts from a supplier. The assembler decides both order size and

lead time for the supplier. In response, the supplier will determine its

production capacity to fulfill the order from the assembler. Compared

with the case where the assembler and the supplier maximize their own

individual profits, the supply chain coordination offers a Pareto efficient

solution and can give more profit to both parties. The implication of this

paper is that the order requested from an assembler to a parts supplier

such as in JIT delivery may damage the overall profit in the chain.

Therefore, the parties involved had better cooperate with each other

rather than emphasizing their own sakes and eventually leading to

lower profits.