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The value of demand forecast updates in managing component procurement for assembly systems

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  • James Cao
  • Kut C. So

Abstract

This article examines the value of demand forecast updates in an assembly system where a single assembler must order components from independent suppliers with different lead times. By staggering each ordering time, the assembler can utilize the latest market information, as it is developed, to form a better forecast over time. The updated forecast can subsequently be used to decide the following procurement decision. The objective of this research is to understand the specific operating environment under which demand forecast updates are most beneficial. Using a uniform demand adjustment model, we are able to derive analytical results that allow us to quantify the impact of demand forecast updates. We show that forecast updates can drastically improve profitability by reducing the mismatch cost caused by demand uncertainty.

Suggested Citation

  • James Cao & Kut C. So, 2016. "The value of demand forecast updates in managing component procurement for assembly systems," IISE Transactions, Taylor & Francis Journals, vol. 48(12), pages 1198-1216, December.
    • Handle: RePEc:taf:uiiexx:v:48:y:2016:i:12:p:1198-1216
    DOI: 10.1080/0740817X.2016.1189630
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    Cited by:

    1. Işık Biçer, & Florian Lücker, & Tamer Boyaci,, 2019. "Beyond retail stores: Managing product proliferation along the supply chain," ESMT Research Working Papers ESMT-19-02_R2, ESMT European School of Management and Technology, revised 16 Mar 2021.
    2. Zheng, Meimei & Dong, Shuangshuang & Zhou, Yaoming & Choi, Tsan-Ming, 2023. "Sourcing decisions with uncertain time-dependent supply from an unreliable supplier," European Journal of Operational Research, Elsevier, vol. 308(3), pages 1365-1379.
    3. Işık Biçer & Florian Lücker & Tamer Boyacı, 2022. "Beyond Retail Stores: Managing Product Proliferation along the Supply Chain," Production and Operations Management, Production and Operations Management Society, vol. 31(3), pages 1135-1156, March.
    4. Guanghua Han & Xujin Pu & Bo Fan, 2017. "Sustainable Governance of Organic Food Production When Market Forecast Is Imprecise," Sustainability, MDPI, vol. 9(6), pages 1-20, June.

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