The value of information sharing in the presence of supply uncertainty and demand volatility

Abstract

This paper provides a conceptual foundation for understanding the impact of supply uncertainty on the value of information sharing when it co-exists with demand volatility under various scenarios. Specifically, we consider a two echelon supply chain in which a manufacturer distributes a single product through a number of independent retailers. The retailers consistently share their replenishment policy and inventory level to the manufacturer. We define operational measures of the value of information with a cost structure which captures inventory holding cost, backorder cost, and ordering/setup cost. Accordingly, a simulation model is developed to experimentally generalize a number of qualitative insights. In general, we find that information sharing is more beneficial for the manufacturer than for the retailers in the presence of supply uncertainty and demand volatility. Our results indicate that, interestingly, the value of information sharing for the manufacturer can increase or decrease with production yield variability with different cost structures and demand patterns. We also find that while supply uncertainty has significant impact on the value of information sharing for the upstream supply chain members, the impact is relatively insignificant for the downstream supply chain members.

Keywords:

• Supply chain management
• Information sharing
• Supply uncertainty
• Production yield
• Operations management