Reducing risk in supply chains with forecasting - an analysis

In order to achieve just-in-time concepts in supply chains, customers usually have to provide their suppliers with information about required materials. The problem that arises is which forecast data the customer should report to his suppliers when the future demand of his outlet isn´t exactly known. This demand is usually subject to a probability distribution. Without any restrictions, the customer will always report those forecast data that correspond to the possible maximum demand of his outlet in order to maintain flexibility. This information will not be useful to the supplier. Therefore, the customer is usually engaged to purchase, within certain limitation periods, that quantity of parts he reported. Otherwise he has to do an adjustment payment. This paper analyses what forecast data the customer should report and what release order quantity the customer should order having previously reported the forecast data.