The value of information sharing in a serial supply chain with AR(1) demand and non-zero replenishment lead times

Abstract

This paper analyzes the value of information sharing, in terms of reduction in the demand variance and average (on-hand) inventory level, in a single product multi-stage (i.e., serial) supply chain with non-zero replenishment lead times. An order-one auto-regressive, AR(1), process characterizes the customer demand. We quantify the reduction in the demand variance and average (on-hand) inventory level in a multi-stage supply chain considering two information sharing scenarios: (1) supply-chain-wide information sharing; and (2) Vendor-Managed Inventory (VMI). In contrast to the related existing literature on a three-stage supply chain with non-zero replenishment lead times, we prove for a multi-stage supply chain that there exists no difference, in terms of the expectation and the variance of total demand over lead time, between supply-chain-wide information sharing and VMI. When there is an instantaneous replenishment across all firms, our analytical results are in agreement with the existing literature on a multi-stage supply chain. Further, we show that the value of information sharing is always greater than or equal to those obtained by an existing study. We also observe that the variance of total demand over lead time is reflected in the variance of the inventory level, derived using inventory balance equation. Furthermore, we carry out a comparative study with respect to the benefits of information sharing under three different supply chain settings, and find that the value of information sharing is more for upstream firms, when demand correlation over a period is high or when lead times are high or both.