Supply chain coordination for newsvendor-type products with two ordering opportunities and demand information update

This paper studies a coordination issue with two ordering opportunities in a two-echelon supply chain, where one manufacturer sells a single newsvendor-type product through one buyer. The manufacturer does not hold inventory and activates production or order with an infinite capacity and a fixed setup cost in response to the buyer's order. The buyer places two orderings during the selling period of the product: one happens at the beginning of the period and the other at some specified time within the selling period. The whole selling period is divided into two stages or sub-periods by the buyer's second order. The stochastic demands in the two sub-periods are assumed to be auto-correlated. The excess demand before the second order is partially backordered, whereas the excess demand at the end of the selling season is utterly lost. Under both the centralized and decentralized settings, we develop the models of how the buyer determines his two-ordering policies. We analyse the existence and uniqueness of the optimal solutions to the models and present the corresponding analytical solutions. Furthermore, we propose an improved revenue-sharing contract that can realize the perfect coordination of the supply chain and study how the revenue-sharing policies affect the supply chain members' decisions. Finally, we show the superiority of the presented two-ordering strategy through numerical examples. Journal of the Operational Research Society (2012) 63, 1655-1678. doi:10.1057/jors.2011.152 Published online 7 March 2012