Benefit of Supply Chain Coordination1

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