Integrating advance demand information in supply chain contracts

Advance demand information (ADI) obtained from customers could be extremely valuable in optimizing production and inventory decisions in supply chains. This research investigates how this information can be integrated into an options-futures contract to determine optimal production and inventory decisions in a supply chain. Using optimization models, we investigate the interaction between the quality of the ADI and decisions to exercise the options. Our results could be useful in designing optimal contract structures that promote sharing of ADI.