Supply Chain Forecast Sharing under Asymmetric Forecast Preferences

Forecast sharing has been widely adopted to coordinate capacity planning in supply chains. However, the effectiveness of forecast sharing can be hindered by forecast inflation caused by the forecaster's asymmetric preferences toward underforecasts or overforecasts. In this paper, we study how suppliers can benefit from knowing the asymmetric preferences in forecasts shared by their customers. We employ a multi-period Bayesian repeated newsvendor model to depict the impact of forecast preferences on how a supplier updates its demand information and prepares its production capacity based on the shared forecast. We characterize the value of the forecast preference information, which is the increase in the supplier's expected profit through improved capacity planning enabled by considering asymmetric forecast preferences. We show that firms can benefit from the forecast preference information, and the benefit is more substantial under higher degrees of preference asymmetry, lower estimation error, and more profitable operations. We also show that it may not be optimal for the supplier to know the exact forecast preference. In the presence of estimation errors, the supplier may benefit from overestimating or underestimating the forecast preference. We further study the impact of the forecast preference information on the supplier's expected profit and derive a finite-sample bound on its regret. We apply the model in a numerical study with data from a real-world forecast sharing practice in a PC manufacturing supply chain. The results show that there exists significant forecast inflation in the shared forecasts. Furthermore, the preference toward overforecast is higher when the forecast horizon is shorter or when the product family's total demand is lower. Using forecast preferences reflected in the data set, we quantify the value of forecast preference information, which is shown to be significant and increasing in the manufacturer's estimation accuracy and the supplier's profitability