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A supply chain contract with flexibility as a risk-sharing mechanism for demand forecasting

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  • Whan-Seon Kim

Abstract

Demand forecasting is one of the main causes of the bullwhip effect in a supply chain. As a countermeasure for demand uncertainty as well as a risk-sharing mechanism for demand forecasting in a supply chain, this article studies a bilateral contract with order quantity flexibility. Under the contract, the buyer places orders in advance for the predetermined horizons and makes minimum purchase commitments. The supplier, in return, provides the buyer with the flexibility to adjust the order quantities later, according to the most updated demand information. To conduct comparative simulations, four-echelon supply chain models, that employ the contracts and different forecasting techniques under dynamic market demands, are developed. The simulation outcomes show that demand fluctuation can be effectively absorbed by the contract scheme, which enables better inventory management and customer service. Furthermore, it has been verified that the contract scheme under study plays a role as an effective coordination mechanism in a decentralised supply chain.

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  • Whan-Seon Kim, 2013. "A supply chain contract with flexibility as a risk-sharing mechanism for demand forecasting," International Journal of Systems Science, Taylor & Francis Journals, vol. 44(6), pages 1134-1149.
    • Handle: RePEc:taf:tsysxx:v:44:y:2013:i:6:p:1134-1149
    DOI: 10.1080/00207721.2011.653592
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    Cited by:

    1. Sanjoy Kumar Paul & Sobhan Asian & Mark Goh & S. Ali Torabi, 2019. "Managing sudden transportation disruptions in supply chains under delivery delay and quantity loss," Annals of Operations Research, Springer, vol. 273(1), pages 783-814, February.
    2. Subrata Saha, 2016. "Channel characteristics and coordination in three-echelon dual-channel supply chain," International Journal of Systems Science, Taylor & Francis Journals, vol. 47(3), pages 740-754, February.
    3. Kraude, Richard & Narayanan, Sriram & Talluri, Srinivas, 2022. "Evaluating the performance of supply chain risk mitigation strategies using network data envelopment analysis," European Journal of Operational Research, Elsevier, vol. 303(3), pages 1168-1182.

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