Revisiting the value of information sharing in two-stage supply chains

Abstract

There is a substantive amount of literature showing that demand information sharing can lead to considerable reduction of the bullwhip effect/inventory costs. The core argument/analysis underlying these results is that the downstream supply-chain member (the retailer) quickly adapts its inventory position to an updated end-customer demand forecast. However, in many real-life situations, retailers adapt slowly rather than quickly to changes in customer demand as they cannot be sure that any change is structural. In this paper, we show that the adaption speed and underlying (unknown) demand process crucially effect the value of information sharing. For the situation with a single upstream supply-chain member (manufacturer) and a single retailer, we consider two demand processes: stationary or random walk. These represent two extremes where a change in customer demand is never or always structural, respectively. The retailer and manufacturer both forecast demand using a moving average, where the manufacturer bases its forecast on retailer demand without information sharing, but on end-customer demand with information sharing. In line with existing results, the value of information turns out to be positive under stationary demand. One contribution, though, is showing that some of the existing papers have overestimated this value by making an unfair comparison. Our most striking and insightful finding is that the value of information is negative when demand follows a random walk and the retailer is slow to react. Slow adaptation is the norm in real-life situations and deserves more attention in future researchexploring when information sharing indeed pays off.

Manufacturer product quality information disclosure with channel encroachment in the E‐commerce age

“…Our study is also related to the literature on information sharing in supply chain settings, such as one‐manufacturer‐one‐retailer (e.g.,Guo, ; Guo & Iyer, ; Mittendorf et al, ; Jiang et al, ; Huang & Wang, ; Teunter et al, ; Zhang et al, ), one‐manufacturer‐multiple‐retailers (e.g.,Li, ; Li & Zhang, ; Wu et al, ; Wang et al, ) and competing supply chains (Guo et al, ; Shamir & Shin, ; Ha et al, ; Guan et al, ; Wei et al, ). Some studies also investigate information sharing in a dual‐channel supply chain setting (Yue & Liu, ; Zhang et al, ).…”

Strategic Information Sharing in a Dynamic Supply Chain with a Carrier under Complex Uncertainty

“…The partnership between sellers and buyers is widely discussed in the first stream. For example, Cachon and Fisher [9], Lee et al [6], and Teunter et al [10] studied the value of information sharing between upstream and downstream firms. It is concluded that sharing information is beneficial to both parties only under certain conditions.…”

“…Further, it is often hard and costly to obtain complete information on uncertain market for a manufacturer. Thus, production quantity is forecasted based on orders from the downstream retailer [6,10].…”

“…Similar to Teunter et al [10], the common moving average method is utilized to forecast the order quantity after N periods. The forecast is based on historical order quantities ( = − 1, − 2, ..., 1) from the retailer.…”

Value of information analysis for assessing risks and benefits of nanotechnology innovation

“…Value of information (VoI) analyses have been developed and used specifically to assess the influence of uncertainty reduction (due to acquisition of new and improved information) on management decisions [3,4]. Similar to traditional sensitivity and uncertainty analysis, VoI analyses are concerned with the influence of uncertain parameters and model structures on model outcomes, but the focus is not on performance of individual model outputs, but rather on the change in ranking of management alternatives available to decision makers.…”