Abstract: Financial distress of an enterprise in a supply chain will pass on to others by quantity of goods etc., which may lead to a distress of the whole supply chain. In a supply chain with single manufacturer and retailer, on the condition that demand is random and influenced by business effort level(e), taking costs of efforts(g(e)) into account, how the financial distress of different level goes from the retailer to the manufacturer is described, and then decisions are made according to the value of financial distress(D). The result shows: When the distress is in different levels, there will be three kinds of decision groups: (max∏_m(Q,e),max∏_r(Q,e)), (max∏_m(Q,e),max∏_r(Q,e)), (max∏_r(Q,e),max{R_m(Q,e)+R_r(Q,e)}); As the distress is lighter, the supply chain has a certain ability to repair itself; On the contrary, enterprises should change their decisions to protect themselves from the financial distress. At last, a numerical example verifies the conclusion: when D is less than 576, the distress will not be transferred; and when D ranges from 576 to 1871, the distress will be controlled a little; and when D is over 1871, the distress will be passed to the manufacturer. So the financial distress cannot be totally controlled under Decentralized decision-making. In this study, a new perception and a valuable guidance are provided to the supply chain coordination.

Key words: supply chain, propagation of financial distress, control of financial distress, stackelberg game