This Article Full Text (PDF) References Alert me when this article is cited Alert me if a correction is posted Services Email this article to a friend Similar articles in this journal Alert me to new issues of the journal Download to citation manager Citing Articles Citing Articles via Google Scholar Google Scholar Articles by Ren, Z. J. Articles by Terwiesch, C. Search for Related Content

Information Sharing in a Long-Term Supply Chain Relationship: The Role of Customer Review Strategy

Operations and Technology Management Department, Boston University School of Management, Boston, Massachusetts 02215
Operations and Information Management Department, The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104
Marketing Group, Haas School of Business, University of California, Berkeley, California 94720
Operations and Information Management Department, The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104
ren{at}bu.edu
cohen{at}wharton.upenn.edu
hoteck{at}haas.berkeley.edu
terwiesch{at}wharton.upenn.edu

In this paper, we study the practice of forecast sharing and supply chain coordination with a game-theoretical model. We find that in a one-shot version of the game, forecasts are not shared truthfully by the customer. The supplier will rationally discount the forecast information in her capacity allocation. This results in Pareto suboptimality for both supply chain parties. However, we show that a more efficient, truth-sharing outcome can emerge as an equilibrium from a long-term relationship. In this equilibrium, forecast information is transmitted truthfully and trusted by the supplier, who in turn allocates the system-optimal capacity. This leaves both the customer and the supplier better-off, compared to the nontruthful-sharing equilibrium.

We identify a multiperiod review strategy profile that supports the truthful-sharing equilibrium. The key element of this strategy is that the supplier computes a scoring index of the customer's behavior that is updated over time and used to evaluate if the customer has sufficient incentive to share his private information truthfully in each transaction of the repeated game. Compared to trigger strategies, review strategies are more tolerant but require diligence and more monitoring effort.

Subject classifications: supply chain management; forecast sharing; long-term relationship.
History: Received March 2005; revision received June 2008; accepted September 2008.