Abstract: A two-echelon supply chain of ameliorating items consisting of a retailer and a supplier is presented in this paper to achieve the supply chain coordination. The coordination problem of the supply chain is studied by taking quantity discount as incentives under the assumption of the lot-for-lot policy. It can be found that the optimal strategy is achieved with quantity discount provided by the supplier. The numerical example is given to illustrate that the optimal strategy is very effective in improving the coordination of the supply chain. The sensitivity of the total cost of the supply chain with respect to amelioration rate and demand rate has also been presented at last.

Key words: ameliorating items, quantity discount, supply chain coordination