The value of sharing lead time information

Abstract

The widespread adoption of Enterprise Resource Planning (ERP) systems has, among many other benefits, increased the ability of a firm to share operational data with customers. In this paper we analyze the factors that determine whether or not sharing a specific type of information, namely state-dependent lead time information, can benefit a firm. We develop a stochastic model of a custom-production environment, in which customers are handled on a first-come first-served basis but have differing tolerances for waiting. The firm has the option to share different amounts of information about the lead time a potential customer may incur. Although the information differs across scenarios, the reliability of that information in terms of the probability that a stated lead time is met is equal in the eyes of the customers. We derive conditions under which sharing more information with customers improves the firm's profits and the customers' experiences. We show that it is not always the case that sharing information improves the lot of the firm. We show that when customers' tolerances for waiting are more heterogeneous then the benefit to the firm from sharing lead time information increases. Our conclusion is that management should only authorize sharing detailed lead time information, be it through information system integration or frontline sales people, after a careful analysis of a customer's sensitivity to delay.