The Value of Information Integration in Meeting Delivery Dates

Abstract

In this article, we consider the value of shared information within a business network. To make the problem concrete, we focus on a specific operational problem: How the final supplier to the customer determines promised delivery dates. In a traditional supply chain, the final supplier has little or no information on the delivery performance of intermediate suppliers and thus, has limited information with which to set delivery dates. On the other hand, in an information-integrated business network, the final supplier's enterprise resource planning (ERP) system can interact with all the intermediate suppliers' ERP systems to determine exactly how far ahead or behind schedule the network is in meeting the needs of a specific customer. This information should improve the final supplier's ability to set realistic delivery dates. We attempt to quantify the value of this information and determine precisely why it is valuable so that management can best exploit information integration. We use a modeling approach in this research, beginning with simple analytic models and progressing to more realistic simulation models. Our analytic model establishes an important principle: Information integration not only significantly improves the average on-time delivery performance of a business network, but also dramatically improves its worst-case performance. Because customer dissatisfaction is generally associated with worst-case performance, information integration may be highly beneficial even if its effect on average on-time delivery is small. Simulation models allow us to compare the performance of more realistic business networks. These models suggest, for example, that the value of information integration is dependent on both the structure of the network itself (whether serial or arborescent) and on the typical customer order date in the production cycle. These insights allow us to begin to identify the types of business networks in which information integration will have the highest value.