Quantifying the Effects of Trust in Supply Chains During Promotional Periods

Abstract

This paper uses a generic dynamic model of a supply chain to quantify the consequences for supply chain dynamics of the distortion of information flows as they are processed by humans and then propagated along the supply chain. An important factor influencing these flows is the level of trust between supply chain partners. The dimensions of such trust are examined here and a brief review of research aimed at evaluating its importance in this area is undertaken. An optimal control model is then constructed to calculate the cost implications of the prevailing level of trust in a multi-echelon supply chain faced with satisfying a promotion for the end product. The mechanism by which both low and high levels of trust distort demand information as it is transmitted along the supply chain is investigated. It is shown that, in certain circumstances, low levels of trust can increase total supply chain costs considerably. In long supply chains it is shown that moderate levels of mistrust are the best policy. A sensitivity analysis reveals that these results are essentially unaffected by the cost structures assumed. Lastly, two methods designed to compensate for low levels of trust are appraised.