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Impact of market demand mis-specification on a two-level supply chain

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  • Hosoda, Takamichi
  • Disney, Stephen M.

Abstract

This paper investigates the impact of mis-specifying the market demand process on a serially linked two-level supply chain. Box-Jenkins models are used to represent both the true and a mis-specified market demand processes. It is shown that the impact of mis-specification on cost is minor if the supply chain tries to minimise the market demand forecast errors. Furthermore, our analysis suggests that mis-specification does not always result in additional costs. A managerial insight is revealed; poor forecast accuracy is not always bad for the total supply chain costs. In other words, employing more accurate forecasting methods may actually result in higher total supply chain costs.

Suggested Citation

  • Hosoda, Takamichi & Disney, Stephen M., 2009. "Impact of market demand mis-specification on a two-level supply chain," International Journal of Production Economics, Elsevier, vol. 121(2), pages 739-751, October.
  • Handle: RePEc:eee:proeco:v:121:y:2009:i:2:p:739-751
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    References listed on IDEAS

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    13. Hosoda, Takamichi & Disney, Stephen M., 2006. "On variance amplification in a three-echelon supply chain with minimum mean square error forecasting," Omega, Elsevier, vol. 34(4), pages 344-358, August.
    14. Disney, S.M. & Farasyn, I. & Lambrecht, M. & Towill, D.R. & de Velde, W. Van, 2006. "Taming the bullwhip effect whilst watching customer service in a single supply chain echelon," European Journal of Operational Research, Elsevier, vol. 173(1), pages 151-172, August.
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    Cited by:

    1. Fan, Chin-Yuan & Fan, Pei-Shu & Chang, Pei-Chann, 2010. "A system dynamics modeling approach for a military weapon maintenance supply system," International Journal of Production Economics, Elsevier, vol. 128(2), pages 457-469, December.
    2. Hosoda, Takamichi & Disney, Stephen M., 2012. "On the replenishment policy when the market demand information is lagged," International Journal of Production Economics, Elsevier, vol. 135(1), pages 458-467.
    3. Zhu, Xiaowei & Mukhopadhyay, Samar K. & Yue, Xiaohang, 2011. "Role of forecast effort on supply chain profitability under various information sharing scenarios," International Journal of Production Economics, Elsevier, vol. 129(2), pages 284-291, February.
    4. Boute, Robert N. & Disney, Stephen M. & Lambrecht, Marc R. & Houdt, Benny Van, 2014. "Coordinating lead times and safety stocks under autocorrelated demand," European Journal of Operational Research, Elsevier, vol. 232(1), pages 52-63.
    5. Wang, Xun & Disney, Stephen M. & Wang, Jing, 2014. "Exploring the oscillatory dynamics of a forbidden returns inventory system," International Journal of Production Economics, Elsevier, vol. 147(PA), pages 3-12.
    6. Hedenstierna, Carl Philip T. & Disney, Stephen M., 2016. "Inventory performance under staggered deliveries and autocorrelated demand," European Journal of Operational Research, Elsevier, vol. 249(3), pages 1082-1091.
    7. Chiang, Chung-Yean & Lin, Winston T. & Suresh, Nallan C., 2016. "An empirically-simulated investigation of the impact of demand forecasting on the bullwhip effect: Evidence from U.S. auto industry," International Journal of Production Economics, Elsevier, vol. 177(C), pages 53-65.
    8. Beutel, Anna-Lena & Minner, Stefan, 2012. "Safety stock planning under causal demand forecasting," International Journal of Production Economics, Elsevier, vol. 140(2), pages 637-645.
    9. Ali, Mohammad M. & Babai, Mohamed Zied & Boylan, John E. & Syntetos, A.A., 2017. "Supply chain forecasting when information is not shared," European Journal of Operational Research, Elsevier, vol. 260(3), pages 984-994.
    10. Hosoda, Takamichi & Disney, Stephen M., 2012. "A delayed demand supply chain: Incentives for upstream players," Omega, Elsevier, vol. 40(4), pages 478-487.
    11. Warren Liao, T. & Chang, P.C., 2010. "Impacts of forecast, inventory policy, and lead time on supply chain inventory--A numerical study," International Journal of Production Economics, Elsevier, vol. 128(2), pages 527-537, December.
    12. Disney, Stephen M. & Gaalman, Gerard J.C. & Hedenstierna, Carl Philip T. & Hosoda, Takamichi, 2015. "Fill rate in a periodic review order-up-to policy under auto-correlated normally distributed, possibly negative, demand," International Journal of Production Economics, Elsevier, vol. 170(PB), pages 501-512.
    13. Sachs, Anna-Lena & Minner, Stefan, 2014. "The data-driven newsvendor with censored demand observations," International Journal of Production Economics, Elsevier, vol. 149(C), pages 28-36.
    14. Wang, Xun & Disney, Stephen M., 2016. "The bullwhip effect: Progress, trends and directions," European Journal of Operational Research, Elsevier, vol. 250(3), pages 691-701.
    15. Hosoda, Takamichi & Disney, Stephen M. & Gavirneni, Srinagesh, 2015. "The impact of information sharing, random yield, correlation, and lead times in closed loop supply chains," European Journal of Operational Research, Elsevier, vol. 246(3), pages 827-836.
    16. Wang, Xun & Disney, Stephen M. & Wang, Jing, 2012. "Stability analysis of constrained inventory systems with transportation delay," European Journal of Operational Research, Elsevier, vol. 223(1), pages 86-95.

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