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We endow the downstream firm in a supply chain with operating costs in addition to the traditional overage and underage costs. We reanalyze Lariviere and Porteus's “Selling to a Newsvendor” model (2001), allowing for non-linear production costs, and provide comparative statics. We then explore investment in reducing downstream operating costs. To overcome the fact that investment is lower in a decentralized chain than in an integrated one, we propose several coordination mechanisms––buybacks, revenue sharing and operating subsidy with a license fee.