On the interplay between local lead times, overall lead time, prices, and profits in decentralized supply chains

A two-stage decentralized supply chain operates in make-to-order under a stochastic environment. Each stage represents an independent firm that quotes a price and a delivery time to its downstream while satisfying a minimum service level. The mean demand depends on the final price and the overall delivery time quoted to the customers by the whole supply chain. We study three settings. First, the downstream, as a Stackelberg leader, decides its price and controls both delivery times, and the upstream, as a follower, reacts by deciding its own price. Second, the downstream decides its delivery time and controls prices, and the upstream reacts by quoting its own delivery time. Third, the upstream, as a leader, decides its price and controls both delivery times, and the downstream, as a follower, decides its own price. This is the first study to investigate the delivery time quotation and pricing in decentralized supply chains where each firm performs operations and has a delivery time, and the demand is function of both upstream and downstream delivery times in addition to final price. We characterize analytically the optimal strategy under each setting and derive insights into the interplay between local delivery times, overall delivery time, prices, demand, and profits. We investigate how delivery times can be used to coordinate the supply chain and the impact of firms’ capacities.