Abstract: As medical reform policies are implemented and consolidation in pharmaceutical distribution industry accelerates, pharmaceutical supply chain management is constantly upgrading, stiffer competition will improve market concentration. The two-invoice policy breaks the distribution pattern of benefits in the pharmaceutical supply chain. In order to prevent the disconnection of the supply chain due to the instability of supply chain restructuring, a rational pharmaceutical supply chain coordination strategy is explored to give pharmaceutical supply chain and its member appropriate incentives. It is important for improving the efficiency of supply chain management and broadening the profit margins of member companies. The pricing strategy and the coordination of pharmaceutical supply chain under two-invoice policy is investigated. The Stackelberg game model is used to analyze a three-echelon supply chain consisting of one pharmaceutical manufacturer, one pharmaceutical distributor and one retailer pharmacy or hospital. The R & D technology (e₁) and logistics capability (e₂) are both considered. The relationship between the pharmaceutical manufacturer and distributor are modeled as a Stackelberg game, where the manufacturer is the leader and the distributor is the follower. The manufacturer can employ e₁ to improve the effectiveness of drugs. The distributor can employ e₂ to improve distribution efficiency of drugs. Market demand is affected by the selling prices(P_r), e₁ and e₂.By analyzing the optimal pricing decisions and profits in centralized and decentralized systems, the paper puts forward 5 propositions. The optimal selling prices and order quantity are analyzed, and the profits of the supply and its member under both centralized and decentralized decision systems are compared. Then, to improve the performance of the decentralized system, price discount and revenue-sharing contracts combination are proposed to coordinate the supply chain and provide the conditions under which price discount contracts can coordinate the supply chain. In the first part numerical experiments are used to illustrate the effects of e₁ and e₂ parameters on the decisions of pharmaceutical supply chain. It is found that when the e₂ assigned to a pharmaceutical distributor is adequate, the e₁ has a positive effect on the supply chain and its members’ profit, and when the e₁ assigned to a pharmaceutical distributor is adequate, the e₂ has a positive effect on the supply chain and its members’ profit. The second part demonstrates the approach to find the interval of the revenue-sharing coefficient (δ₁,δ₂,μ,ε)and identifies the coordination effects between price discount and revenue-sharing contracts. Some valuable decision suggestions are provided. The results of the study will assist supply chain members to manage and optimize their R & D and logistics level and pricing decisions. Our results can provide decision-makers and policy-makers with some new managerial insights under the reform of Medicine.

Key words: two-invoice policy, pharmaceutical supply chain, technology R&D, logistics distribution, contact combination