Collaborative forecasting for an optimal capacity through buyback contract

Collaborative forecasting is a process where supply chain members jointly develop a single forecast of end-product demand. This paper considers a decentralized two-stage supply chain with a retailer that faces random demand for her end product and a supplier that is the sole source for the end product. We study the important problem of how to assure credible forecast information sharing between the supplier and the retailer. The supplier is responsible for acquiring the necessary capacity before receiving an order from the retailer who possesses private forecast information for her end product. We present the reason why a wholesale price contract is inefficient for the supply chain. We address that a buyback contract can achieve forecasting collaboration, the supplier's appropriate capacity, and the profits expected of the two parties