A comparative study of supply chain models under the traditional centralized and coordinating policies with incentive schemes

Recently, great attention has been paid to the supply chain concept. While there is much research material on buyer and supplier performance assessment and management, a relationship perspective can bring an added dimension, especially to the performance of close, mutual relationships. The paper examines the problem of how to establish an incentive scheme to furnish reliable and truthful information in supply chains. The study investigates a relationship performance definition that incorporates the financial dimension. It focuses on a dyadic relationship in a chain including one manufacturer and one retailer, in which stochastic demand and lead-time are considered. The aim of the study is to find proper coordinating mechanisms based on exchanging financial incentives that can improve the overall performance of the whole chain as well as each member in the chain. Using numerical means, the study shows that the functional coordinating policy with incentive schemes can improve the overall channel profitability beyond the traditional centralized policy. Additionally, sensitivity analysis is conducted with respect to the bonus cost parameter, and suggestions are made for further research.