Economic analysis of demand uncertainty and delayed information sharing in a third-party managed supply chain

Abstract

Designers and retailers in consumer products industry are faced with high demand volatility and potential loss of profit from design piracy. Many retailers rely on third-party supply chain managers (SCMs) to manage global supply chains. A SCM starts raw materials procurement and production process based on expected demand and takes financial risks associated with demand uncertainty. But a retailer often delays sharing product design information with SCM forcing it to expedite production and distribution processes incurring additional financial penalties. To analyse economic impact of delayed information sharing under uncertain demand, we develop a mathematical model. Our model indicates that higher demand volatility lessens the effect of penalty associated with delayed information sharing for retailers. The model also shows that for a given demand volatility, per-unit premium increases asymptotically for a retailer compared to marginal production cost increase for SCM. Such findings are not intuitive for SCMs or retailers.