Impact of Reseller's and Sales Agent's Forecasting Accuracy in a Multi-layer Supply Chain

Naval Research Logistics, 61(3) 207-222, 2014

33 Pages Posted: 12 Mar 2014 Last revised: 11 Mar 2017

See all articles by Ling-Chieh Kung

Ling-Chieh Kung

National Taiwan University - Department of Information Management

Ying-Ju Chen

Hong Kong University of Science & Technology (HKUST) - Department of Information Systems, Business Statistics and Operations Management; Hong Kong University of Science & Technology (HKUST) - Dept. of Industrial Engineering and Decision Analytics

Abstract

We consider a three-layer supply chain with a manufacturer, a reseller, and a sales agent. The demand is stochastically determined by the random market condition and the sales agent’s private effort level. While the manufacturer is uninformed about the market condition, the reseller and the sales agent conduct demand forecasting and generate private demand signals. Under this framework with two levels of adverse selection intertwined with moral hazard, we study the impact of the reseller’s and the sales agent’s forecasting accuracy on the profitability of each member.

We show that the manufacturer’s profitability is convex on the reseller’s forecasting accuracy. From the manufacturer’s perspective, typically improving the reseller’s accuracy is detrimental when the accuracy is low but is beneficial when it is high. We identify the concrete interrelation among the manufacturer-optimal reseller’s accuracy, the volatility of the market condition, and the sales agent’s accuracy. Finally, the manufacturer’s interest may be aligned with the reseller’s when only the reseller can choose her accuracy; this alignment is never possible when both downstream players have the discretion to choose their accuracy.

Keywords: multi-level information asymmetry, demand forecasting accuracy, salesforce compensation

Suggested Citation

Kung, Ling-Chieh and Chen, Ying-Ju, Impact of Reseller's and Sales Agent's Forecasting Accuracy in a Multi-layer Supply Chain. Naval Research Logistics, 61(3) 207-222, 2014, Available at SSRN: https://ssrn.com/abstract=2407506

Ling-Chieh Kung (Contact Author)

National Taiwan University - Department of Information Management ( email )

No.1,Sec. 4, Roosevelt Rd
Taipei
Taiwan

Ying-Ju Chen

Hong Kong University of Science & Technology (HKUST) - Department of Information Systems, Business Statistics and Operations Management ( email )

Clear Water Bay
Kowloon
Hong Kong

Hong Kong University of Science & Technology (HKUST) - Dept. of Industrial Engineering and Decision Analytics ( email )

Hong Kong

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