Abstract: With the supply chain of Vendor Managed Inventory(VMI) model which was characterized by random yield and the effect of stochastic promotion effort on market demand, the decision-making of the supplier and retailer under both centralized-control and decentralized-control were analyzed, the affect of random yield on the potential cost and decision-making of supplier was discussed, the contract model combined sales rebate with buy-back was built. On this basis, the affect of contract on retailer and supplier's decision-making and the revenue of the whole supply chain were analyzed. The research shows that the contract is able to urge retailer to increase the promotion effort and order quantity, which is also able to urge supplier to increase the planned production quantity, and this could improve the revenue of the supply chain. Furthermore, the way to realize the best income for the supply chain is proposed. Finally, the result is validated by the numerical analysis.

Key words: VMI, promotion effort, random yield, sales rebate, buy back, contract