This research studies capacity and partnership planning problems in a two echelon supply chain. In this two echelon supply chain, there are one upstream firm (supplier) and two downstream buyers. Supplier provides key components to the buyers; buyers make components into finish goods and sell to the customers. There exists partnership between the supplier and their buyers. Partnership level affects buyers’ order allocation and supplier’s decision. The proposed dynamic decision model considers uncertainty of customer demand and studies the strategic interaction between supplier-buyers in capacity planning, component pricing and partnership management. Through numerical analysis, our research provides useful supply chain management guidelines.