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Journal ArticleDOI

Supply Chain Inventory Management and the Value of Shared Information

01 Aug 2000-Management Science (INFORMS)-Vol. 46, Iss: 8, pp 1032-1048
TL;DR: In traditional supply chain inventory management, orders are the only information firms exchange, but information technology now allows firms to share demand and inventory data quickly and inexpensively, and it is concluded that implementing information technology to accelerate and smooth the physical flow of goods through a supply chain is significantly more valuable.
Abstract: In traditional supply chain inventory management, orders are the only information firms exchange, but information technology now allows firms to share demand and inventory data quickly and inexpensively. We study the value of sharing these data in a model with one supplier, N identical retailers, and stationary stochastic consumer demand. There are inventory holding costs and back-order penalty costs. We compare a traditional information policy that does not use shared information with a full information policy that does exploit shared information. In a numerical study we find that supply chain costs are 2.2% lower on average with the full information policy than with the traditional information policy, and the maximum difference is 12.1%. We also develop a simulation-based lower bound over all feasible policies. The cost difference between the traditional information policy and the lower bound is an upper bound on the value of information sharing: In the same study, that difference is 3.4% on average, and no more than 13.8%. We contrast the value of information sharing with two other benefits of information technology, faster and cheaper order processing, which lead to shorter lead times and smaller batch sizes, respectively. In our sample, cutting lead times nearly in half reduces costs by 21% on average, and cutting batches in half reduces costs by 22% on average. For the settings we study, we conclude that implementing information technology to accelerate and smooth the physical flow of goods through a supply chain is significantly more valuable than using information technology to expand the flow of information.
Citations
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Book ChapterDOI
TL;DR: This chapter extends the newsvendor model by allowing the retailer to choose the retail price in addition to the stocking quantity, and discusses an infinite horizon stochastic demand model in which the retailer receives replenishments from a supplier after a constant lead time.
Abstract: Publisher Summary This chapter reviews the supply chain coordination with contracts. Numerous supply chain models are discussed. In each model, the supply chain optimal actions are identified. The chapter extends the newsvendor model by allowing the retailer to choose the retail price in addition to the stocking quantity. Coordination is more complex in this setting because the incentives provided to align one action might cause distortions with the other action. The newsvendor model is also extended by allowing the retailer to exert costly effort to increase demand. Coordination is challenging because the retailer's effort is noncontractible—that is, the firms cannot write contracts based on the effort chosen. The chapter also discusses an infinite horizon stochastic demand model in which the retailer receives replenishments from a supplier after a constant lead time. Coordination requires that the retailer chooses a large basestock level.

2,626 citations


Cites background from "Supply Chain Inventory Management a..."

  • ...With a buy-back contract the supplier charges the retailer w per unit purchased, but pays the retailer b per unit remaining at the end of the season: Tb(q; w; b) = wq ¡ bI(q) = bS(q) + (w ¡ b)q: A retailer should not pro…t from left over inventory, so assume b · w....

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  • ...…Whang (1999) base their coordination scheme on the work by Clark and Scarf (1960).66 Clark and Scarf (1960), which focuses only on system wide performance, demonstrates that base stock policies are optimal and they can be evaluated from a series of simple single location optimization problems…...

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Journal ArticleDOI
TL;DR: In this article, a simple two-level supply chain with nonstationary end demands is analyzed and the authors show that the value of demand information sharing can be quite high, especially when demands are significantly correlated over time.
Abstract: Many companies have embarked on initiatives that enable more demand information sharing between retailers and their upstream suppliers. While the literature on such initiatives in the business press is proliferating, it is not clear how one can quantify the benefits of these initiatives and how one can identify the drivers of the magnitudes of these benefits. Using analytical models, this paper aims at addressing these questions for a simple two-level supply chain with nonstationary end demands. Our analysis suggests that the value of demand information sharing can be quite high, especially when demands are significantly correlated over time.

2,122 citations


Cites background from "Supply Chain Inventory Management a..."

  • ...There has been some recent interest in quantifying the value of information sharing between manufacturers and retailers (c.f., Bourland et al. 1996, Cachon and Fisher 1997, Gavirneni et al. 1999)....

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Journal ArticleDOI
TL;DR: In this paper, the authors present a review of various quantitative models for managing supply chain risks and relate various supply chain risk management strategies examined in the research literature with actual practices, highlighting the gap between theory and practice, and motivate researchers to develop new models for mitigating supply chain disruptions.

2,085 citations

Journal ArticleDOI
TL;DR: In this article, the impact of environmental collaborative activities on manufacturing performance was examined using a survey of North American manufacturers, and it was found that the benefits of collaborative green practices with suppliers were broadest, while collaboration with customers yielded mixed outcomes.

1,481 citations


Cites background from "Supply Chain Inventory Management a..."

  • ...For example, information sharing and integration improves supply chain efficiency through lower inventory and better delivery performance (Cachon and Fisher, 2000; Lee et al., 2000)....

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Journal ArticleDOI
TL;DR: In this article, the authors aim to extend the collaborative paradigm beyond a supply chain's core operations to peripheral, non-core areas such as the natural environment and examine the antecedents of green supply chain practices.
Abstract: Purpose – This research aims to extend the “collaborative paradigm” proposed by others in prior research beyond a supply chain's core operations. To date, this paradigm has generated relatively little empirical research on peripheral, non‐core areas such the natural environment. Antecedents (both plant‐level and supply chain characteristics) of green supply chain practices (GSCP) are examined. Among possible antecedents, prior research pointed to supply chain integration – both logistical (tactical level) and technological (strategic level) – as a potentially important determinant of green practices.Design/methodology/approach – Green practices are defined along the two dimensions of environmental collaboration and monitoring. The empirical analysis used data from 84 plants in North America surveyed in 2002. Validity and reliability of scales for new and existing constructs were assessed through factor analysis. Hierarchical linear regression was used to test the hypotheses for the antecedents of GSCP.Fin...

1,306 citations


Cites background or result from "Supply Chain Inventory Management a..."

  • ...EDI); hence, their model was consistent with several other operational research studies (Cachon and Fisher, 2000; Lee et al., 2000)....

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  • ...For example, logistical integration was often recognized to improve supply chain efficiency through lower inventory and better delivery performance (Cachon and Fisher, 2000; Lee et al., 2000)....

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References
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Journal ArticleDOI
TL;DR: The authors analyzes four sources of the bullwhip effect: demand signal processing, rationing game, order batching, and price variations, and shows that the distortion tends to increase as one moves upstream.
Abstract: (This article originally appeared in Management Science, April 1997, Volume 43, Number 4, pp. 546-558, published by The Institute of Management Sciences.) Consider a series of companies in a supply chain, each of whom orders from its immediate upstream member. In this setting, inbound orders from a downstream member serve as a valuable informational input to upstream production and inventory decisions. This paper claims that the information transferred in the form of "orders" tends to be distorted and can misguide upstream members in their inventory and production decisions. In particular, the variance of orders may be larger than that of sales, and distortion tends to increase as one moves upstream-a phenomenon termed "bullwhip effect." This paper analyzes four sources of the bullwhip effect: demand signal processing, rationing game, order batching, and price variations. Actions that can be taken to mitigate the detrimental impact of this distortion are also discussed.

4,124 citations


"Supply Chain Inventory Management a..." refers background in this paper

  • ...Lee et al. (1997) find that sharing information reduces the supplier’s demand variance, which should benefit the supply chain, but they do not quantitatively measure this benefit....

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Journal ArticleDOI
TL;DR: In this article, a simple two-level supply chain with nonstationary end demands is analyzed and the authors show that the value of demand information sharing can be quite high, especially when demands are significantly correlated over time.
Abstract: Many companies have embarked on initiatives that enable more demand information sharing between retailers and their upstream suppliers. While the literature on such initiatives in the business press is proliferating, it is not clear how one can quantify the benefits of these initiatives and how one can identify the drivers of the magnitudes of these benefits. Using analytical models, this paper aims at addressing these questions for a simple two-level supply chain with nonstationary end demands. Our analysis suggests that the value of demand information sharing can be quite high, especially when demands are significantly correlated over time.

2,122 citations

Journal ArticleDOI
TL;DR: The problem of determining optimal purchasing quantities in a multi-installation model of this type, which arises when there are several installations, is considered.
Abstract: In the last several years there have been a number of papers discussing optimal policies for the inventory problem. Almost without exception these papers are devoted to the determination of optimal purchasing quantities at a single installation faced with some pattern of demand. It has been customary to make the assumption that when the installation in question requests a shipment of stock, this shipment will be delivered in a fixed or perhaps random length of time, but at any rate with a time lag which is independent of the size of the order placed. There are, however, a number of situations met in practice in which this assumption is not a tenable one. An important example arises when there are several installations, say 1, 2,..., N, with installation 1 receiving stock from 2, with 2 receiving stock from 3, etc. In this example, if an order is placed by installation 1 for stock from installation 2, the length of time for delivery of this stock is determined not only by the natural lead time between these two sites, but also by the availability of stock at the second installation. In this paper we shall consider the problem of determining optimal purchasing quantities in a multi-installation model of this type.

1,462 citations

Journal ArticleDOI
TL;DR: In this paper, information flow between a supplier and a retailer in a two-echelon model that captures the capacitated setting of a typical supply chain is considered, and the authors estimate the savings at the supplier due to information flow and study when information is most beneficial.
Abstract: We incorporate information flow between a supplier and a retailer in a two-echelon model that captures the capacitated setting of a typical supply chain We consider three situations: (1) a traditional model where there is no information to the supplier prior to a demand to him except for past data; (2) the supplier knows the (s, S) policy used by the retailer as well as the end-item demand distribution; and (3) the supplier has full information about the state of the retailer Order up-to policies continue to be optimal for models with information flow for the finite horizon, the infinite horizon discounted and the infinite horizon average cost cases Study of these three models enables us to understand the relationships between capacity, inventory, and information at the supplier level, as well as how they are affected by the retailer's (S - s) values and end-item demand distribution We estimate the savings at the supplier due to information flow and study when information is most beneficial

932 citations


"Supply Chain Inventory Management a..." refers background in this paper

  • ...Gavirneni et al. (1999) found that information sharing is most valuable when capacity is not restrictive; information is valuable only if the system has the flexibility to respond to the information....

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  • ...Gavirneni et al. (1999) and Aviv and Federgruen (1998) allow for limited supplier capacity, whereas capacity is unrestricted in our model and in the other papers....

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  • ...Both Lee et al. (2000) and Gavirneni et al. (1999) assume there exists a perfectly reliable exogenous source of inventory; information sharing has no impact on the retailer because its orders are always received in full after a fixed number of periods....

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  • ...Management Science/Vol. 46, No. 8, August 2000 1033 Gavirneni et al. (1999), and Aviv and Federgruen (1998)....

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  • ...Lee et al. (2000) use shared information to improve the supplier’s order quantity decisions in a serial system with a known autoregressive demand process....

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Journal ArticleDOI
TL;DR: An adaptive base-stock policy for a single-item inventory system, where the demand process is nonstationary, is considered, for which an exponential-weighted moving average provides the optimal forecast.
Abstract: In this paper, we consider an adaptive base-stock policy for a single-item inventory system, where the demand process is nonstationary. In particular, the demand process is an integrated moving average process of order (0, 1, 1), for which an exponential-weighted moving average provides the optimal forecast. For the assumed control policy we characterize the inventory random variable and use this to find the safety stock requirements for the system. From this characterization, we see that the required inventory, both in absolute terms and as it depends on the replenishment lead-time, behaves much differently for this case of nonstationary demand compared with stationary demand. We then show how the single-item model extends to a multi-stage, or supply-chain context; in particular we see that the demand process for the upstream stage is not only nonstationary but also more variable than that for the downstream stage. We also show that for this model there is no value from letting the upstream stages see the exogenous demand. The paper concludes with some observations about the practical implications of this work.

445 citations


"Supply Chain Inventory Management a..." refers background in this paper

  • ...Graves (1996) also shows that his full information policy is close to optimal....

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  • ...Several researchers study allocation rules, but none addresses the issue of information sharing (see Cachon 1995, Chen and Samroengraja 1996, and Graves 1996)....

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  • ...However, Graves (1999) studies a similar model, with the exception that there is no outside inventory source, and concludes that information sharing provides no benefit to the supply chain....

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  • ...Some of them assume traditional information (e.g., Axsäter 1993, Cachon 1995, Chen and Samroengraja 1996, Lee and Moinzadeh 1986, Svoronos and Zipkin 1988), while others assume full information (e.g., Chen and Zheng 1997, Graves 1996, McGavin et al. 1993)....

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