The Value of Sharing Lead-Time Information in Custom Production

Abstract

The wide spread adoption of ERP systems together with customer relationship management applications has increased the ability of a firm to share operational data with customers. In this paper we analyze the factors that determine whether or not this information sharing will benefit the firm. We develop a stochastic model of a custom production environment with pricing, where customers have differing tolerances for waiting. We model intermediate levels of information sharing between none and complete state dependent lead time information and compare performance from the firm's and customer's perspectives. We model lead time information sharing in a way that makes the different levels of information sharing comparable in terms of accuracy. We derive conditions under which sharing increasing amounts of information with customers improves firm profits and the customer experience. We show that it is not always the case that sharing information improves the lot of the firm. We conduct numerical experiments to investigate system behavior in which the firm selects capacity as well as sets optimal prices. Our results are derived for general customer lead time tolerance distributions. Our results show that information sharing policies must be established by management and not by frontline sales people. Only after a careful analysis of the potential impact of information sharing on customer behavior and pricing should management authorize sharing detailed lead time information. Furthermore, the appropriate level of information sharing must be determined as well.