Supply chain coordination models for newsvendor-type products: Considering advertising effect and two production modes

This paper discusses production and order as well as advertising coordination issues in a single-manufacturer single-buyer supply chain, where the manufacturer sells a newsvendor-type product through the buyer who faces a random demand depending on advertising expenditure. Before the start of the selling period, the buyer needs to determine how much she should invest in advertising and how many units of products she should order from the manufacturer. By the end of the season, if the revealed demand exceeds stock on hand, the buyer has an opportunity to place a second order from manufacturer to meet part of the unfilled demand. The ordered items are produced by the manufacturer in two production modes for different requirements. Under such a setting, the centralized and decentralized decision models are developed respectively, and the closed form solution to each model is provided as well. An improved revenue-sharing contract is proposed to achieve the supply chain coordination.