Sharing shipment quantity information in the supply chain

Abstract

This paper evaluates the benefit of a strategy of sharing shipment information, where one stage in a supply chain shares shipment quantity information with its immediate downstream customers—a practice also known as advanced shipping notice. Under a periodic review inventory policy, one supply-chain member places an order on its supplier every period. However, due to supplier's imperfect service, the supplier cannot always exactly satisfy what the customer orders on time. In particular, shipment quantities arriving at the customer, after a given lead-time, may be less (possibly more) than what the customer expects—we define this phenomenon as shipment quantity uncertainty. Where shipment quantity information is not shared with customers, the only way to respond is through safety stock. However, if the supplier shares such information, i.e. customers are informed every period of the shipment quantity dispatched, the customer may have enough time to adapt and resolve this uncertainty by adjusting its future order decisions. Our results indicate that in most circumstances this strategy, enabled by information technologies, helps supply-chain members resolve shipment quantity uncertainty well. This study provides an approach to quantify the value of shared shipment information and to help supply-chain members evaluate the cost-benefit trade-off during information system construction. Numerical examples are provided to indicate the impact of demand/shipment parameters on strategy implementation. While previous studies mainly focus on the information receiver's perspective, we evaluate a more general three-tier linear supply chain model via simulation, studying how this strategy affects the whole supply chain: the information sender, the information receiver and the subsequent downstream tier.