Availability and reliability of information transmission for supply chain coordination with demand information sharing

Abstract

Information sharing enhances coordination in a supply chain, which mitigates the bullwhip effect and enables smooth production and inventory management for members of the chain. This study considers a two-echelon supply chain in which an upstream manufacturer and a downstream retailer are coordinated by revenue sharing, and investigates the effects that the reliability and availability of information sharing have on the profits of entire supply chain. Also, the retailer shares the demand information with the manufacturer through an information transmission mechanism, where the demand is fit by an autoregressive model. The costs of information transmission are quantitatively evaluated with the linear, exponential, and power law functional forms, and the variations in profits are accordingly investigated. This study contributes to the literature by providing a practical view on information sharing among supply chain members, because the reliability and availability are taken into account in the assessment of sharing quality. Unlike the previous studies, the proposed approach of this study integrates the relevant factors, such as the quality of information sharing in terms of reliability and availability, and the information transmission costs, to probe into the variations in profits of supply chain members. In this regard, the accuracy of production decisions, such as the optimal order quantities and inventory levels, would be better compared to other approaches on the basis of profit maximization for the entire supply chain. The results of sensitivity analyses show that the greater the reliability and availability of information sharing is, the better the supply chain management performance would be, and the supply chain members, especially the upstream manufacturer, would thus gain more profits. However, higher reliability and availability of information sharing would often incur greater expenditures, and as a result, the trade-off for the determination of the optimal reliability and availability of information sharing is critical for supply chain coordination.