Trust in supply forecast information sharing

Abstract

In this paper, we investigate the role of trust in supply forecast signalling in a supply chain with a supplier and a manufacturer in a one-shot game. It is assumed that the supplier faces a random yield uncertainty that is multiplied by the manufacturer’s order quantity. The supplier has a private forecast of yield risk. Based on the information, the supplier decides whether to share its forecast truthfully, or not to share. On the other hand, the manufacturer is faced with two ordering strategies. If it trusts the supplier’s report, then it updates its belief on the yield risk providing a forecast signal by the supplier. Otherwise, it orders based on its prior belief. We analytically obtain the optimal order quantity where the random yield uncertainty follows uniform distribution. The intuitive result indicates that the supplier has a tendency to deviate from reporting true forecast information. The numerical results support the intuitive conclusion.