Dynamic lead time coordination in supply chains under bilateral operational information asymmetry

Coordinating modern supply chains (SCs) is hindered by market volatility and, critically, by bilateral operational information asymmetry, where partners hold private, unverifiable information about their real-time capabilities. This study addresses this challenge by developing and testing a novel coordination framework for a dyadic SC, centered on a dynamic lead time negotiation coupled with an adaptive revenue-sharing mechanism. A comparative simulation analysis reveals that while lead time negotiation alone enhances responsiveness by significantly reducing delivery times, it can paradoxically destroy total SC profit in decentralized settings due to uncompensated operational costs. However, the proposed integrated framework – combining negotiation with adaptive revenue sharing – proves highly effective. It not only fosters cooperation but also recovers nearly all profit losses from decentralization, while ensuring an equitable profit distribution. Furthermore, the study uncovers a critical insight into pricing power: a leader’s ability to charge for faster service is fundamentally limited by the partner’s economic viability, with a clear threshold beyond which an aggressive pricing strategy becomes value-destructive for the entire SC. This research contributes a novel operational contract that effectively mitigates the impacts of information asymmetry and enhances system-wide efficiency by explicitly linking dynamic operational decisions (lead time) to their shared financial consequences, offering a practical path toward resilient and profitable SC collaboration.