Supply Chain Contract Design Under Asymmetric Information On Demand Forecasting Accuracy

Supply chain management, especially how to match supply and demand hasreceived more and more attention in recent years. An efective way to conquerthis issue is to make the retailer forecast about the market demand before thesales season. However, the retailer may be reluctant to disclose the forecastingaccuracy to the manufacturer. Therefore, how to design a contract between asupplier and a retailer in a supply chain with the forecasting accuracy being theretailer’s private information is of great importance.This thesis considers a supply chain contract design problem with a domi-nant supplier and a weak retailer, in which the retailer possesses private informa-tion on demand forecasting precision. As a benchmark, we first get the optimalcontract under full information. It demonstrates that there is a threshold of theoptimal order quantity for both the high precision forecasting retailer and thelow precision forecasting retailer. Meanwhile, it’s difcult to simply say whichkind of precision forecasting is more beneficial to the manufacturer when theretailer’s forecast about the market demand is high, which depends on the costperformance of making a high precision forecasting. However, when the retailer’sforecast about the market demand is low, the low precision forecasting is alwaysmore preferable. Later, the optimal contract under asymmetric information isobtained. By making a comparison with that under full information, we findthat the thresholds of the optimal order quantity are distorted to some extentand the manufacturer’s expected profit is always no greater than that under fullinformation. Finally, we consider a special case where the forecasting cost doesnot exist and a numerical example is given to illustrate the findings of this paper.