Feasibility principles for Downstream Demand Inference in supply chains

Abstract

Many companies are adopting strategies that enable Demand Information Sharing (DIS) between the supply chain links. Recently, a steady stream of research has identified mathematical relationships between demands and orders at any link in the supply chain. Based on these relationships and strict model assumptions, it has been suggested that the upstream member can infer the demand at the downstream member from their orders. If this is so, DIS will be of no value. In this paper, we argue that real-world modelling requires less restrictive assumptions. We present Feasibility Principles to show that it is not possible for an upstream member to accurately infer consumer demand under more realistic model assumptions. Thus, we conclude that DIS has value in supply chains. We then move our focus to the supply chain model assumptions in the papers arguing that there is value in sharing demand information. Using a simulation experiment, we show that the value of sharing demand information in terms of inventory reductions will increase under more realistic supply chain model assumptions.