Supply chain contracts under demand and cost disruptions with asymmetric information

We study the risk management strategies in supplier chain when the disruptions of demand and cost are the private information. We use linear contract menus to analyze the supply chain under demand and cost disruptions with asymmetric information. We derive out the optimal contract for the supplier and show the impact of asymmetric disruption information on the performance of the supplier, the retailer and the supply chain. Further, we find out that the effects of demand and cost disruption may interact with each other while the production plan does not change in some cases. The optimal production quantity with asymmetric information is not greater than that with symmetric information. The information value for all members is not monotone in all parameters. Each change will induce that the supplier revises his strategy when the supply chain members trade off the cost of deviation and asymmetric information. (C) 2011 Elsevier B.V. All rights reserved.