Sharing Information to Manage Perishables (ed.2)

Abstract

We address the value of information (VOI) sharing in the context of a two echelon, serial supply chain with one retailer and one supplier that provides a single perishable product to consumers. We evaluate information sharing under two supply chain structures where the retailer shares it inventory level and replenishment policy with the supplier. In the first structure, referred to as Decentralized Information Sharing, both facilities make their own profit-maximizing replenishment decisions. In the second structure, referred to as Centralized Control, the replenishment decisions are coordinated. The latter supply chain structure corresponds to the industry practices of company owned stores or vendor managed inventory. We measure the VOI as the marginal improvement in expected profits that a supply chain achieves relative to the case when no information is shared. Key assumptions of our model include stochastic demand, lost sales, and fixed order quantities. We establish the importance of information sharing in the supply chain and identify conditions under which relatively substantial benefits are realized. As opposed to previous work on the VOI, the major benefit of information sharing in our setting is driven by the suppliers ability to provide the retailer with fresher product. By isolating the benefit by firm, we show that sharing information is not always Pareto improving for both supply chain partners in the decentralized setting.