How Collaborative Forecasting Can Reduce Forecast Accuracy

Operations Research Letters

Centralized supply chain coordination is often assumed to provide, among other benefits, more accurate demand forecasts due to the pooling of demand signals by supply chain partners. However, forecast accuracy improvements are not always observed by collaborative supply chains in practice. In this paper, we provide an analytical perspective on the link between supply chain collaboration and forecast accuracy, showing that collaborative forecasting can lead to less accurate demand forecasts over a wide range of cost and demand parameters. The result is explained by the decision maker's relative preference for investing in forecasting vs. order quantities to manage demand uncertainty.