Commitment decisions with partial information updating

Commitment decisions with partial information updating

0.00 Avg rating0 Votes
Article ID: iaor20072193
Country: United States
Volume: 52
Issue: 8
Start Page Number: 780
End Page Number: 795
Publication Date: Dec 2005
Journal: Naval Research Logistics
Authors: , ,
Abstract:

In this paper, we extend the results of Ferguson on an end-product manufacturer's choice of when to commit to an order quantity from its parts supplier. During the supplier's lead-time, information arrives about end-product demand. This information reduces some of the forecast uncertainty. While the supplier must choose its production quantity of parts based on the original forecast, the manufacturer can wait to place its order from the supplier after observing the information update. We find that a manufacturer is sometimes better off with a contract requiring an early commitment to its order quantity, before the supplier commits resources. On the other hand, the supplier sometimes prefers a delayed commitment. The preferences depend upon the amount of demand uncertainty resolved by the information as well as which member of the supply chain sets the exchange price. We also show conditions where demand information updating is detrimental to both the manufacturer and the supplier.

Reviews

Required fields are marked *. Your email address will not be published.