Academic journal article Journal of the Association for Information Systems

Collective Outsourcing to Market (COM): A Market-Based Framework for Information Supply Chain Outsourcing *

Academic journal article Journal of the Association for Information Systems

Collective Outsourcing to Market (COM): A Market-Based Framework for Information Supply Chain Outsourcing *

Article excerpt

This paper discusses the importance of and a solution to separating the information flow from the physical product flow in a supply chain. Motivated by the inefficient demand forecast caused by information asymmetry and lack of an incentive among supply chain partners to share valuable information, we propose a radically new framework called collective outsourcing to market (COM) to address many information supply chain design challenges. To validate the COM framework, we consider a supply chain with one manufacturer and multiple downstream retailers. Retailers privately acquire demand forecast information that they do not have incentive to share horizontally with other retailers or vertically with the upstream manufacturer. We consider two alternative market mechanisms that can be used to outsource the information-intensive demand forecasting task for the whole supply chain. The specially organized market can be viewed as a cost effective way of acquiring quality information that, at the same time, aligns individual retailers' incentives to credibly share their private information. We further discuss the real world implementation issues including market design and the costs and benefits of proposed solutions.

Keywords: information supply chain, market mechanism, outsourcing, demand forecasting

(ProQuest: ... denotes formulae omitted.)

1. Introduction

Unarguably, demand forecasting plays a critical role in supply chain management. Companies now invest aggressively in software and consulting in order to acquire more relevant information and produce better forecasts. However, in current practice, supply chain partners independently manage their forecasting activities and are extremely unwilling to disclose their forecasts to other supply chain partners in order to maintain their own competitive advantages. The overall supply chain does not benefit from individual companies' information acquisition. Even though researchers have addressed the benefits of information sharing in supply chain management, how to provide the chain partners with the correct incentives to conduct their demand forecasting activities in a more cost-effective way and in a way that benefits the entire supply chain remains a challenging task. This paper proposes a general framework to induce collective information acquisition and demand forecast sharing using market mechanisms. We suggest that outsourcing the forecasting activity to a dedicated market can improve efficiency and willingness to share, and we call this novel framework collective outsourcing to market (COM).

In a supply chain, the uncertain market demands of individual firms are usually driven by some macro-level, industry-related or economy-related environmental factors. Individually managed demand forecasts cause supply chain inefficiency in three ways. First, supply chain partners invest repeatedly in acquiring highly correlated demand information, which increases the overall cost of demand forecasting. Second, the quality of individual forecasts is generally sub-optimal, since individual companies have only limited access to information sources and limited ability to process them, which results in less accurate forecasts and inefficient decision making. Third, but not least, firms vary in their capability to produce good quality forecasts. Significant information asymmetry leads to strategic plays and has been reported to be the main reason for many coordination failures, such as the well-known "bullwhip" effect (Lee et al., 1997).

In this paper, we propose an innovative way to reorganize the demand forecasting process so as to benefit the whole supply chain. Our proposed COM solution consists of two key elements. First, we propose that companies collectively outsource the process of demand forecasting, especially the correlated part of the demand, to a specialized independent third party. The third party can undertake the task, manage the budget and consulting resources for the companies, and integrate available pieces of information into an overall accurate forecast. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.