Collective Outsourcing to Market (Com): A Market-Based Framework for Information Supply Chain Outsourcing

Abstract

Fang Fang College of Business Administration California State University at San Marcos fangfang@csusm.edu Zhiling Guo Department of Information Systems, University of Maryland, Baltimore County (UMBC) zguo@umbc.edu Andrew B. Whinston McCombs School of Business The University of Texas at Austin abw@uts.cc.utexas.edu This paper discusses the importance of and a solution to separating the information flow from the physical product flow in a supply chain. Motivated by the inefficient demand forecast caused by information asymmetry and lack of an incentive among supply chain partners to share valuable information, we propose a radically new framework called collective outsourcing to market (COM) to address many information supply chain design challenges. To validate the COM framework, we consider a supply chain with one manufacturer and multiple downstream retailers. Retailers privately acquire demand forecast information that they do not have incentive to share horizontally with other retailers or vertically with the upstream manufacturer. We consider two alternative market mechanisms that can be used to outsource the information-intensive demand forecasting task for the whole supply chain. The specially organized market can be viewed as a cost effective way of acquiring quality information that, at the same time, aligns individual retailers’ incentives to credibly share their private information. We further discuss the real world implementation issues including market design and the costs and benefits of proposed solutions.