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

Listed author(s):
  • Hosoda, Takamichi
  • Disney, Stephen M.
Registered author(s):

    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.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0925-5273(09)00134-0
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    Article provided by Elsevier in its journal International Journal of Production Economics.

    Volume (Year): 121 (2009)
    Issue (Month): 2 (October)
    Pages: 739-751

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    Handle: RePEc:eee:proeco:v:121:y:2009:i:2:p:739-751
    Contact details of provider: Web page: http://www.elsevier.com/locate/ijpe

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    1. Hau L. Lee & Kut C. So & Christopher S. Tang, 2000. "The Value of Information Sharing in a Two-Level Supply Chain," Management Science, INFORMS, vol. 46(5), pages 626-643, May.
    2. Fangruo Chen, 1999. "Decentralized Supply Chains Subject to Information Delays," Management Science, INFORMS, vol. 45(8), pages 1076-1090, August.
    3. Zhang, Xiaolong, 2004. "The impact of forecasting methods on the bullwhip effect," International Journal of Production Economics, Elsevier, vol. 88(1), pages 15-27, March.
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    5. Kenneth Gilbert, 2005. "An ARIMA Supply Chain Model," Management Science, INFORMS, vol. 51(2), pages 305-310, February.
    6. Xu, Kefeng & Dong, Yan & Evers, Philip T., 2001. "Towards better coordination of the supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 37(1), pages 35-54, March.
    7. Gavirneni, Srinagesh, 2006. "Price fluctuations, information sharing, and supply chain performance," European Journal of Operational Research, Elsevier, vol. 174(3), pages 1651-1663, November.
    8. Kahn, James A, 1987. "Inventories and the Volatility of Production," American Economic Review, American Economic Association, vol. 77(4), pages 667-679, September.
    9. Donna F. Davis & John T. Mentzer & Teresa M. Mccarthy & Susan L. Golicic, 2006. "The evolution of sales forecasting management: a 20-year longitudinal study of forecasting practices," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 25(5), pages 303-324.
    10. Stephen C. Graves, 1999. "A Single-Item Inventory Model for a Nonstationary Demand Process," Manufacturing & Service Operations Management, INFORMS, vol. 1(1), pages 50-61.
    11. Hau L. Lee & V. Padmanabhan & Seungjin Whang, 1997. "Information Distortion in a Supply Chain: The Bullwhip Effect," Management Science, INFORMS, vol. 43(4), pages 546-558, April.
    12. Stephen C. Graves, 1999. "Addendum to "A Single-Item Inventory Model for a Nonstationary Demand Process"," Manufacturing & Service Operations Management, INFORMS, vol. 1(2), pages 174-174.
    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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