Abstract:In order to investigate the impact to supply chain operation caused by upstream enterprise’s financial constraint, and to seek the ways to improve the efficiency of supply chain operation, this study establishes a one-to-one supply chain dynamic game model whose upstream supplier is financially constrained. Effectiveness to the improvement of the efficiency of this financially constrained supply chain by retailer’s advance payment is analyzed. Revenue-sharing coordination mechanism based on retailer’s advance payment is designed, and the conditions of mechanism’s parameters are given. The results show that financial constraint of the supplier reduces efficiency of supply chain operation; the retailer can incent the supplier to produce more by advance payment, though full coordination cannot be achieved; and supply chain coordination and arbitrary allocation of supply chain profit can be realized through revenue-sharing coordination mechanism based on retailer’s advance payment. Specific expressions of parameters of the mechanism which achieves Pareto improvement to both supply chain members are analyzed through a numeric example eventually.