Abstract: In practice, the order of capital flow and logistics in supply chains usually haves three scenarios—capital flow synchronizes with, lags behind or precedes logistics. A two-echelon supply chain consisting of a supplier and a retailer under stochastic demand is considered, the inventory strategy and operation performance of each member of the supply chain under each scenario is analyzed, determine which scenario of capital flow and logistics the supply chain adopts to obtain the maximum operation performance. The results show when the supplier's unit product unit time capital gain is relatively large, it is more beneficial for capital flow to precede logistics for the supply chain. When the supplier's unit product unit time opportunity gain is relatively small, the scenario whereby capital flow lags behind logistics is better for the supply chain. In addition, the retailer has the only optimal target inventory under each scenario, and the retailer's optimal target inventory is the same when capital flow synchronizes with logistics and capital flow precedes logistics.

Key words: stochastic demand, capital flow, logistics, two-echelon supply chain, operation performance