Optimal Profit Model in Coordinating Supply Chain with Stochastic Demands

Coordination between two different business entities is an important way to gain competitive advantage. The collaboration and coordination between upstream and downstream in the supply chain is the key to gain for the whole supply chain system. This paper analyzes the relationship of the cost and the profit between supplier and buyer in supply chain, establishes general cost-profit model in a two-period supply chain, and obtains non-coordinated model without outsourcing under shortage and coordinated model with outsourcing under shortage. The paper also illustrates the feasibility of the model through a numerical example.