Abstract

On the basis of extremum principle, a mathematical model of two-echelon supply chain for both the suppliers and the purchasers is established. The model is built to analyze the decentralized and centralized procurement decision-making under the condition of controllable lead time and the joint undertaking of costs. By using the numerical analysis and operating the two models, the difference of the amount of economic procurement and the lead time under different manner of decision-making and costs undertaking are discussed. The results show that the amount of costs reduction is associated with the compensation costs paid by suppliers for further cutting down the lead time. Therefore, cutting down the lead time to a certain extent would reduce the overall costs of supply chain.

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