Lead time decisions under lead-time sensitive demand with demand disruptions

Abstract

This paper studies a two-party supply chain in which a retailer orders a short-life-cycle product from a supplier. The supplier establishes a production plan using a market forecast and determines his wholesale price. And then the retailer decides the order quantities and sells the product to the customers and declares a quoted lead time L at the retail price p. When the selling period begins, demand may disrupt. To cope with such demand disruption, the supplier may alter his wholesale price, which in turn influences the retailer's order quantity, the quoted lead time and the retail price. Our objective is to explore supply chain coordination via quantity discount in the presence of demand change, and to derive conditions under which the supply chain is coordinated to achieve maximum profit. A numerical example is given that illustrates the supply chain members' decisions in the absence and in the presence of demand change.