A supply chain is two or more parties linked by a flow of goods, information, and funds. When one or more parties try to unilaterally optimize their own profits, system performance may be hurt. In this paper, we consider a supply chain composed of a manufacturer and a retailer selling goods to lead-time-sensitive customers. We identify channel conflicts and discuss possible coordination mechanisms to improve the efficiency of the supply chain. We find that although a price mechanism such as a returns policy can coordinate the supply chain, under certain conditions, a lead time policy can perform better than a returns policy from the perspective of the manufacturer.
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