This thesis is concerned with two-stage capacitated supply chains with a lead-time sensitive revenue function. Stage-1 produces and stocks components, and stage-2 uses these components to make the finished products.; First, we determine the optimal amount of inventory that should reside at each of the two stages in order to maximize the overall supply chain profit. Next, we study two different decentralized models in which each stage refers to a different business entity: the supplier and the manufacturer. In the first model, only stage-1 (the supplier) carries inventory. All finished items are custom orders that can be completed only after demand is known. For this arrangement of make-to-stock and make-to-order production stages, this study proposes a new revenue sharing contract that results in channel optimal inventory decisions. The study then obtains a two-part revenue sharing contract that can coordinate the actions of the supplier and the manufacturer, when either is free to choose its own stocking level. We show that, with the additional degree of freedom made possible by the ability to keep stock of some finished items, the manufacturer chooses a production-inventory strategy in which it realizes a significant portion of the overall supply chain profits.; In the centralized model, we show that when faster delivery lead-time is crucial, it is necessary to hold some components and/or finished goods inventory—especially when the utilization is high. In the decentralized model, when the manufacturer holds no inventory and the market conditions permit the supplier to operate under high utilization, the supplier's share of the profit is larger when the utilization is greater. (Abstract shortened by UMI.)
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