Partial information sharing in supply chains with ARMA demand

Abstract

AbstractIn this paper we suggest a novel mechanism for information sharing that allows a retailer to control the amount of shared information, and thus to limit information leakage, while still assisting the supplier to make better‐informed decisions and improve the overall efficiency of the supply chain. The control of the amount of leaked information facilitates information sharing because, absent such control, a retailer may refrain from sharing information due to the concern of information leakage. Specifically, we analyze a supply chain in which a retailer observes Autoregressive Moving Average (ARMA) demand for a single product where all players use the myopic order‐up‐to policy for determining their orders. We introduce a new class of information sharing arrangements, coined partial‐information shock (PaIS) sharing. This new class of information sharing agreements extends the previously studied mechanisms of demand sharing and full‐information shock sharing. We demonstrate that the retailer can construct a PaIS sharing arrangement that allows for an intermediate level of information sharing while simultaneously controlling the amount of leakage. We characterize when one PaIS arrangement will be more valuable to the supplier than another. We conclude with a numerical study that highlights that there does not necessarily need to be a tradeoff between the supplier having a better forecast and the retailer experiencing a higher level of leakage.