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


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.

International Journal of Production Economics, 121 (2), 739-751