Business & Management Studies

Abstract

Considering trust as a critical factor for successful collaborative demand forecast sharing, this paper studies the dynamic relationship between trust level-based forecasting capability and supply chain profitability. We develop a forecasting coordination model to examine how the enhanced partner trust level can influence the forecasting evolution to improve demand forecasts’ accuracy. We estimate costs and profits from demand forecast sharing under varying trust levels between a buyer and a partner supplier and then determine the optimal level of trust for both parties to create the maximum economic value through collaborative demand forecast sharing. To assess the opportunity costs associated with no demand forecast sharing, we compare a joint forecasting supply chain’s profitability with a supply chain where the supply chain partners maintain separate demand forecasts. We find that once the buyer and the supplier agree to engage in demand forecast sharing with a joint goal of supply chain profit maximization, they should be able to retain the collaborative trust that is as closer to an absolute level as possible throughout their working relationship. Thus, the model presented in this study may help both the buyer and the partner supplier evaluate how supply chain profitability can improve as they modify their partner trust levels and determine the optimum trust-level policy for mutual benefits.