Gaining Benefits from Joint Forecasting and Replenishment Processes: The Case of Auto-Correlated Demand

In this paper we consider a cooperative, two-level supply chain consisting of a retailer and a supplier. As in many practical settings, the supply chain members progressively observe market signals that enable them to explain future demand. The demand itself evolves according to an auto-regressive time series. We examine three types of supply chain configurations. In the first setting, the retailer and the supplier coordinate their policy parameters in an attempt to minimize systemwide costs, but they do not share their observations of market signals. In the second setting, resembling many original vendor-managed inventory (VMI) programs, the supplier takes the full responsibility of managing the supply chain's inventory, but the retailer's observations of market signals are not transferred to him. In our third setting, reminiscent of collaborative forecasting and replenishment partnerships, inventory is managed centrally, and all demand related information is shared. We propose a set of stylized models to study the three settings and use them to provide managerial insights into the value of information sharing, VMI, and collaborative forecasting.