‘Too Little’ or ‘Too Late’: The Timing of Supply Chain Demand Collaboration

Kefeng Xu (), Yang Dong and Yu Xia
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Kefeng Xu: UTSA

Working Papers from College of Business, University of Texas at San Antonio

Abstract: This study examines the supply chain demand collaboration between a manufacturer and a retailer. We study how the timing of collaboration facilitates production decision of the manufacturer when the information exchanged in the collaboration is asymmetric. We investigate two collaboration mechanisms: ‘Too Little’ and ‘Too Late’, depending on the timing of information sharing between the manufacturer and the retailer. Our research results indicate that early collaboration as in the ‘Too Little’ mechanism leads to a stable production schedule, which decreases the need of production adjustment when production cost information becomes available; whereas a late collaboration as in the ‘Too Late’ mechanism enhances the flexibility of production adjustment when demand information warrants it. In addition, the asymmetric demand information confounds production decisions all the time; the manufacturer has to provide proper incentives to ensure truthful information sharing in collaboration. Information asymmetry might also reduce the difference in production decision between the ‘Too Little’ and ‘Too Late’ collaboration mechanisms. Numerical analysis is further conducted to demonstrate the performance implications of the collaboration mechanisms on the supply chain.

Keywords: supply chain management; incentive contract; asymmetric information; supply chain collaboration; production-planning decision. (search for similar items in EconPapers)
JEL-codes: D81 D82 L14 L24 M11 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2014
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