Abstract: With the development of E-commerce, more and more manufactures have established a online distribution channel while keeping traditional retail channel, thus having dual channel to distribute products. Online distribution channel helps manufactures widen the market scope and decrease the operation cost. But it also hurts the retailers profit, thus being subject to retailers' resistances and lead to channel conflict. The appearance of VMI pattern inspires research into competing and coordination strategies for dual channel under VMI supply chain. However previous researches didn't focus on these supply chain. Based on a two-stage VMI supply chain including a manufacturer and multiple retailers, a model of Stackelberg game between a manufacturer and retailers is developed in this paper, considering cooperative promotion in which supply chain can be coordinated and online distribution channel established by manufacturer. The decision variables of manufacture include the quantity of retailers' order, the cycle of retailers' order and price of product which is sold via online channel. Retailers need to determine price of product sold via traditional retailer channel and promotion quantity. It is found that fraction of backlogging rate for retailers become bigger compared with a supply chain without online distribution channel. Furthermore, the increase of cooperative promotion ratio and the fade of free riding' effect leads to higher quantity of promotion; the increase of demand transformation between dual channel leads to higher profit of manufacturer and lower profit of retailers and the whole supply chain. Finally, a numerical example is given to illustrate the theoretical results of the proposed model and conduct sensitivity analysis on parameters of the proposed model.

Key words: cooperative promotion, dual channel supply chain, vendor management inventory, coordination of supply chain