The value of demand forecast updates in managing component procurement for assembly systems. Issue 12 (1st December 2016)

• Record Type: Journal Article
• Authors: Cao, James; So, Kut C.
• Is Part Of: IIE transactions. Volume 48:Issue 12(2016)
• Page Start: 1198
• Page End: 1216
• Publication Date: 2016-12-01
• Subjects: Demand forecast updates -- assembly systems -- component procurement strategies -- inventory management; Industrial engineering -- Periodicals; Génie industriel; 620
• DOI: 10.1080/0740817X.2016.1189630
• Languages: English
• ISSNs: 0740-817X

Abstract

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.