Supply Chain Innovation Research: A Conceptual Approach of Information Management with Game Theory

Abstract

Whilst investigating the problem of information sharing throughout the supply chain, Cachon and Lariviere (Manag Sci 47(5):629–646, 2001) studied the amount of demand information that supply chain participants need to share in order to create the appropriate capacity in which to supply it. The producer benefits from the supplier’s high capacity, especially when there is a high demand forecast. The supplier, on the other hand, has to manage increased storage costs derived from the higher dimension. In these situations, the player (producer) has the incentive to inflate his demand, waiting for the other player (supplier) to believe in it and to create additional capacity. Unfortunately, the supplier is aware of the incentive of the producer to distort the forecast, and thus views it with skepticism. Given this, the question remains how the player (producer) is able to increase the credibility of their forecast in order to convince the supplier to invest in this additional capacity. Hence, our research problem consists of evaluating game theory as a suited methodology to demonstrate and quantify the value of information sharing throughout the supply chain.