Abstract:In this paper,we consider a decentralized supply chain that consists of one original equipment manufacturer( OEM) and one contract manufacturer( CM) .In order to conclude a business,the OEM needs to bargain with the CM and to consider the risks from the random demand of customers and the random supply of the CM.Since the selling prices of both parties are private information in the bargaining,we model a Bayesian game to get the equilibrium prices which give each party the maximum utility.Then,we demonstrate the concavity of the expected profit of the OEM and the CM,and model a Stackelberg game to get the optimal ordering and production decisions.Finally,we propose a contract combining shortage penalty and surplus purchase to coordinate the supply chain.By adjusting the contract’s parameters,we can make the decentralized supply chain’s profit equal the maximum profit under the centralized setting.