Supply chain coordination with information sharing: The informational advantage of GPOs

Abstract

This paper explores the potential of group purchasing organizations (GPOs) in facilitating information sharing and coordinating horizontal competition. We consider a supply chain composed of one GPO and two manufacturers competing in quantity. The GPO sources and prices a common component for the manufacturers. Each manufacturer has some private information about the uncertain demand, and can choose a part to share with the GPO. Through benchmark analysis, we identify the manufacturers’ horizontal competition and information incompletion as two determinants of supply chain inefficiency under individual purchasing. Then, we investigate the impacts of the GPO on the supply chain with wholesale price contracts and show that double marginalization induced by the GPO is another determinant of inefficiency. For this, both manufacturers have no incentive to share information and group purchasing damages the supply chain. We also show that under group purchasing, information sharing partially from the lower-precision manufacturer rather than both can benefit the supply chain. Next, we present a forecast-sharing-based compensation contracting scheme, under which, the GPO can make perfect supply chain coordination in both quantities and information sharing, and all members in the supply chain can reach win–win results. Finally, we illustrate the GPO's informational advantage by numerical examples.