Supply chain coordination with controllable lead-time and stochastic transportation-time

This paper develops an approach to determine joint optimal lead time decision in a two echelon serial supply chain consists of a supplier and a retailer. The retailer faces continuous demand, and inventory replenishment lead time is divided into controllable production (ordering) time and random shipment time. Shortage costs incurred by random transportation time are shared between supply chain actors. We compares decentralized model and centralized model of the supply chain and it shows total cost is lower in centralized model. Also, controllable lead time need not to be crashed under centralized control. Under decentralized control, the more shortage costs the retailer takes, the less efficient the supply chain becomes. We propose a cost savings sharing mechanism to coordinate such a supply chain.