Forecast Sharing Game

zalp zer
@Stanford University, MS&E 262
April 29, 2015

Announcements
Please sit as sparsely as possible.
Check your email to ensure that you received the link.
Keep your completed assignment turn it in after the game

is over.

The Procurement Game

1. Retailer observes the actual value of X and sends a report
to the Supplier
2. Supplier receives the Retailers report and determines
production quantity Q

3. Demand = X + Y is realized
4. Supplier delivers MIN(Q, Demand) to the Retailer, which
are then sold to the end customers

Retailers Decision Screen

4

Suppliers Decision Screen

5

Retailers Results Screen

6

Suppliers Results Screen

7

Lets Play the Game

Try your best to finish making your decision in each round

within 120 seconds.

Keeping to the time limit will ensure we finish the game on
time.
Remember to click Continue after you finish making

decision/reviewing results in a round.

A decision of 0 means that you have been matched with a

dummy player.

Debriefing of the Experiment

How did you report as a retailer?
How did you determine production quantity as a

supplier?
What affected your decisions in the experiment?

Strategies?
Opportunistic?
Altruistic?
Reciprocal?
Did you change your strategy overtime?

10

Report

Produce Q

Results UTD Students

Report

Actual X

Red line: Optimal Q based on the

retailers report

Red line: 45 Degree line

Trust

Trustworthiness

Source: zer and Zheng. 2011. Trust in Forecast Information Sharing. Management Science
11

Report

Produce Q

Results Stanford UG Students

Actual X
Red line: 45 Degree line

Trustworthiness

Report
Red line: Optimal Q based on the
retailers report

Trust

Source: zer and Zheng. 2011. Trust in Forecast Information Sharing. Management Science
57(6), pp. 11111137.
12

Report

Produce Q

Results Columbia Students

Report

Actual X
Red line: 45 Degree line

Trust

Trustworthiness

Source: zer 2014. Forecast Information Sharing Game at Columbia GSB.

13

Results Compared to Stanford Students

Report vs. Actual Value of X
Stanford Students

You? (UTD)

Red line: 45 Degree line

14

Results Compared to Stanford Students

Production Quantity vs. Report
Stanford Students

You (UTD)

Red line: Optimal production quantity based on the retailers report

Partial trust and cooperation between the two parties!

15

What IF?
How would you change your strategy
If

cost were lower?

If market uncertainty were higher?
If you are playing with your close friend/family?
?

16

Report

Produce Q

High versus Low Cost of Overage

Actual X

Report

Lower cost induces trust and cooperation

Global Supply Chains

U.S.

China

US - China trade accounts for 3% of the world trade volume

China at the cross roads of global supply chains
Several anecdotal evidence (e.g., Ebay vs Taobao)
Two ends of the cultural and institutional spectrum
18

Cross Country and Within Country Results

Forecast Inflation (Trustworthiness)

Production Adjustment (Trust)

48

56
60

50

42
50

40

36

27
36

40
30
21

30

21

20
20
10
CN Supplier
0

US Supplier
US Retailer

CN Retailer

10

CN Retailer

US Retailer
US Supplier
CN Supplier

Trust and trustworthiness are lower in China (twice)

Chinese (and US) show higher trust towards U.S. partners
US-US supply chain > Cross-Country > CN-CN (10% less)
Source: zer and Zheng. 2014. Trust, Trustworthiness, and Information Sharing in Supply Chains Bridging
China and the U.S. Management Science, 6(10) pp 2435-2460
.
19

What is Affecting Decisions?

Pecuniary motives

Non-pecuniary motives

20

Suppliers Decision Newsvendor! (BUT?)

Demand uniformly distributed between 25 and 475 (?)
p = $100, c = $80
Cu = $20, Co=80

Critical Ratio = (20)/(100) = 1/5

f(D)

Mean = 250

1/450

25

F(Q*)
= Area of shaded region
= 1/5

475
Q* = 115
21

Demand

What is Trust?
What do you think trust means
in the context of forecast sharing in a supply chain?
in a more general context?
What are the prerequisites for you to trust?

22

Trust in Forecast Sharing

Suppliers trust:

Willingness to rely on the retailers report to

determine production quantity
Retailers trustworthiness:

Disutility of deception controls incentive for forecast

distortion

23

Definition and Determinants of Trust

Trust is a psychological state comprising the

intention to accept vulnerability based upon

positive expectations of the intentions or behavior of
another.
Uncertainty and vulnerability are essential in

defining trust
Determinants:
Risk attitudes
Aversion to betrayal
Reputation
Others?
Quote from: Rousseau, D., S. Sitkin, R. Burt, C. Camerer. 1998. Not so different after all: A cross-discipline view of trust. Academy of Management
24
Review, 23(3) 393-404.

How to effectively share information?

IT is necessary but not sufficient

Firms may have incentive to manipulate forecasts/information to gain

advantage (i.e., induce the supplier to build more capacity, stock more
inventory, )

Contracts to align incentives based on pecuniary

payoffs.

Put your money where your mouth is

Trust and Trustworthiness (non-pecuniary)

25

Shared Forecasts(Information): Field Data

1999 Q1
1999 Q2
1999 Q3
1999 Q4
2000 Q1

2000 Q2
2000 Q3
2000 Q4
2001 Q1
Actual

1999 Q1

1999 Q2

1999 Q3

1999 Q4

2000 Q1

2000 Q2

2000 Q3

2000 Q4

2001 Q1

2001 Q2

2001 Q3

2001 Q4

Year and Quarter

Source: M. Cohen, et al. 2003. Measuring Imputed Costs. Management Science, 49(12)
16531670.
26

Implications for Forecast Management

Soruce: zer, Zheng and Chen. 2011. Trust in Forecast Information Sharing. Management
Science 57(6), pp. 1111-1137.
27

Summary
Forecasting is a fundamental
Prerequisite for production planning, material procurement,
capacity planning
Firms in a supply chain may have different

information

Retailers know consumer tastes better

Producers know the features of new products better

An efficient supply chain should take advantage of

the better information

A key issue is how to ensure credible info sharing

when conflicting incentives exist

Align pecuniary (contracts) and non-pecuniary (trust) values

28