Investing in Forecast Collaboration

34 Pages Posted: 11 Jan 2007

See all articles by Mumin Kurtulus

Mumin Kurtulus

Vanderbilt University - Operations Management

L. Beril Toktay

Georgia Institute of Technology - Sustainability

Date Written: June 2004

Abstract

Motivated by the mixed results of collaborative forecasting initiatives in the fast-moving consumer goods sector, this paper investigates the conditions that favor the establishment of collaborative forecasting between a supplier and a retailer. We consider a two-stage supply chain where a single supplier sells to a single retailer who faces the newsvendor problem. Both the supplier and the retailer have forecasting capabilities and both can exert costly effort to improve the quality of their local demand forecasts. We assume that the supplier and the retailer exert effort independently and then pool their local forecasts to form a single shared demand forecast. We interpret the existence and stability of an equilibrium in which both parties invest in improving the forecast quality as collaborative forecasting being sustainable. We characterize conditions under which collaborative forecasting is sustainable. Our results have implications concerning the appropriateness of investing in collaboration technology to extract and use information from both parties in a supply chain.

Keywords: supply chain management, demand forecast collaboration, CPFR, information exchange, forecast quality

Suggested Citation

Kurtulus, Mumin and Toktay, L. Beril, Investing in Forecast Collaboration (June 2004). Available at SSRN: https://ssrn.com/abstract=916567 or http://dx.doi.org/10.2139/ssrn.916567

Mumin Kurtulus (Contact Author)

Vanderbilt University - Operations Management ( email )

Nashville, TN 37203
United States

L. Beril Toktay

Georgia Institute of Technology - Sustainability ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

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