On the Benefits of Collaborative Forecasting Partnerships Between Retailers and Manufacturers

Abstract

This paper studies the potential benefits of collaborative forecasting (CF) partnerships in a supply chain that consists of a manufacturer and a retailer. To reflect the reality in production environments, we propose a scorecard that captures inventory considerations, production smoothing, and adherence-to-plans. We present a prescriptive convex-cost production planning model for the manufacturer, and a replenishment model for the retailer. We use our integrative reference model to study the potential benefits of CF partnerships. Overall, we find that the benefits of CF depend on the following key characteristics of the supply chain: the relative explanatory power of the supply chain partners, the supply side agility, and the internal service rate. CF is expected to bring high benefits to the supply chain when the manufacturer has the largest relative explanatory power. But quite disappointingly, in these cases a CF partnership does not appear to be valuable to the manufacturer. When the retailer is the dominant observer of market signals, CF typically yields a "win-win" outcome. In order to effectively act upon the information exchanged via CF, the supply side needs to be sufficiently agile. The benefits reported in this paper should be considered as conservative. This is because CF partnerships often bring better information, improved decision support technologies, as well as process improvement to the trading partners. Consequently, the supply side agility can be improved. If this indeed happens, the compound benefits of CF can be dramatically higher than our conservative estimates. Finally, we provide a qualitative discussion of the possible role of internal service rates in supply chains, either as planning parameters to improve performance, or as a mechanism for sharing the benefits of CF between the trading partners.collaborative forecasting, supply chain management, optimal control, production planning, production smoothing, inventory-production

Performance of supply chain collaboration – A simulation study

“…They proposed decision synchronization, incentive alignment and information sharing as three performance indices. In an attempt to maximize benefits of SCs, all SC members share information (data sharing) and collectively forecast the demand for products to have effective replenishment process (Aviv, 2007;Gavirneni et al, 1999). SCC activities help to improve the performance of involved members in a structured framework with the aim of maximizing profit through improved logistical services (Stank et al, 2001).…”

“…HC-holding cost SC-stock-out cost Stock-out cost or penalty cost is usually calculated for retailers but not for manufacturers (Aviv, 2007). Based on our interview with the case companies, we assume that manufacturers will also incur penalty cost for not completing production on time to facilitate on time delivery; this is similar to stockout cost of retailer.…”

“…This can be achieved through a wider cooperation from all SC members. For instance, efficient capacity utilization can help reducing production time (Aviv, 2007). Customer loyalty can also be achieved if SC activities include customer service such as accepting and handling product returns (Dowlatshahi, 2000).…”

“…From the literature, we have considered three important factors namely number of product returns, product lead time, and capacity utilization (production capacity) to measure the business objectives (Aviv, 2007;Dowlatshahi, 2000).…”

The role of collaboration in the UK green supply chains: an exploratory study of the perspectives of suppliers, logistics and retailers

“…Many businesses around the world have been practicing supply chain collaboration for many years for improving business performance such as reducing cost and increasing profit (Horvath, 2001;Barratt, 2004 ;Danese, 2007 (Aviv, 2007;Smaros, 2007;Ramanathan and Muyldermans, 2010). Level of collaborations will vary based on the intentions of partnerships (Larsen et al, 2003).…”