Two Stage Supply Chain Coordination with

Economies of Scale and Limited Information Sharing

Panos Kouvelis* and Selcuk Karabati **
* Olin School of Business, Washington Univ.-St.Louis
**KOC University, Istanbul, Turkey

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In this paper we address the coordination problem in a deterministic two-stage supply chain under the assumption that the supplier and the buyer share demand rate information only. The supply chain experiences economies of scale in both stages. We show that the supplier can actually moderate a cost-minimizing buyer to order in quantities different than his individual optimal order quantity. We present a quantity discount scheme that achieves this, and analyze the coordination efficiency of the new order quantity and resulting allocation of its supply chain benefits.

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