Supply chain disruption risk management through strategic information acquisition and sharing and risk-sharing contracts

Abstract

In this paper, we develop a framework that captures the effects of information management and risk-sharing contracts in supply chain networks. In particular, we analyse the impact of strategic information acquisition and sharing on supply chain disruption risks and costs and we evaluate the supply chain performance of risk-sharing contracts. Risk-sharing contracts specify who needs to incur the costs when supply chain disruptions occur. We develop a model that consists of three tiers of multi-criteria decision-makers, manufacturers, retailers, and demand markets. We describe the behaviour or each decision-maker, derive the finite-dimensional variational inequality formulation of the equilibrium conditions of the supply chain and present numerical examples. The numerical examples highlight that it is not a priori clear which participant in the supply chain network will benefit from increased information-sharing activities. Our models indicate that the beneficiary of reduced information-sharing costs is in some cases dependent on the negotiation power of participants and that it is also dependent on the type of risk-sharing contract used. Furthermore, the numerical examples show that, in some cases, information-sharing and risk-sharing contracts are complements while in other cases they are substitutes.