Evaluating the Impact of Demand Data and Demand Forecasting on Costs in a Supply Chain

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9872483Ryan This grant provides funding for an analysis of the impact of demand data, demand forecasting and coordination on costs in a supply chain. Unlike most previous work, this research assumes that the distribution of customer demand is unknown and that forecasting is used to estimate the shape and parameters of the distribution. Given the forecasting technique, bounds or approximations for the expected costs in the supply chain will be determined. These costs will be compared with the expected costs under the assumption of known demand distribution. The difference between these costs will be used as a measure of the value of demand data and the impact of forecasting. The impact of the quantity of data, the forecasting technique, and the form of the demand process will also be evaluated. This research will also look at the impact of coordinated inventory control. Three levels of coordination will be modeled: (1) no information sharing and no coordination, (2) information sharing but no coordination, and (3) information sharing and coordination. The expected costs for these three models will be compared to evaluate the impact of information sharing and coordination efforts on costs in the supply chain. In addition, these costs will be used to determine which stages of the supply chain benefit most from coordination. The results of this analysis will provide useful insights on the value of demand information and the impact of demand forecasting on costs in the supply chain. These models are particularly applicable to new products or fashion items, i.e., items for which there is little demand information available, and thus the traditional assumption of known demand distribution is inappropriate. In addition, the analysis will evaluate the value of supply chain coordination and provide methods in which members of the supply chain can be induced to participate in coordination efforts. Given the increasing popularity of coordination initiatives between retailers and manufacturers, this research will provide important insights into the real benefits of information and coordination.