The incremental value of central control in serial supply chains

Abstract

We consider a two-echelon serial supply chain where a single manufacturer replenishes a single downstream customer who faces random, stationary and discrete demand. In this setting, we compare the performance of a traditional supply chain having no information sharing to one where the customer shares demand and inventory information with the manufacturer. We also consider the case of central control where the manufacturer has full control over replenishments. This full information sharing with control by the manufacturer captures what has been called a vendor-managed inventory scenario in the literature. In order to estimate the performance of these three supply chain scenarios, we utilise renewal theory to develop probability models for each. A computational analysis of the models determines the benefit which information sharing offers as well as the incremental benefit central control provides beyond that of information sharing alone, a value which has not typically been considered in the literature despite its importance. Results indicate central control offers a 4.0% improvement over the no-information sharing setting; however, information sharing alone accounts for some of that benefit, offering an average cost savings of 1.8% compared to the no-information sharing setting. We then conclude that central control offers only an additional 2.2% benefit over the information sharing setting.

Keywords:

• supply chain management
• vendor-managed inventory
• value of information
• central control