The Value of Information Sharing in a Multi-Stage Serial Supply Chain with Positive and Deterministic Lead Times

Abstract

In traditional supply chain inventory management, orders used to be the major information that firms exchanged. Information sharing among firms within a supply chain has been a cornerstone of recent innovations in supply chain management. Lee et al. (2000) considered a two-level supply chain, consisting of a manufacturer and a retailer, with non-stationary AR(1) end demand and showed that the manufacturer benefits significantly when the retailer shares its demand information. In our work, we extend the study to quantify the value (i.e., benefit) of information sharing (in terms of demand variance reduction and inventory reduction) to a multi-stage serial supply chain with the number of stages greater than two. The lead time at every stage is positive and deterministic. Base stock levels at each installation are calculated under two scenarios—no information sharing and complete information sharing. The dependency of the benefit of information sharing on parameters like demand correlation and lead times is presented. It is seen that as the number of stages in a serial supply chain increases, the demand variance and hence the bullwhip effect increases; so is the case with an increase in the demand correlation. In addition, a comparative study of a supply chain with stages having respective lead times in decreasing order and a supply chain with stages having respective lead times in increasing order has also been carried out in order to relatively analyze the benefits of information sharing at different stages across these two supply chain settings. It is possibly for the first time in the literature that the benefit of information sharing has been studied and quantified (in terms of the reduction in the total demand variation and the reduction in inventory) in a multi-stage serial supply chain with more than three stages with positive and deterministic lead times.