Sharing Information to Manage Perishables (ed.1)

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Ferguson, Mark E.
Ketzenberg, Michael E.
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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 both supply chain members share their inventory levels and replenishment policies with the other. In the first structure, referred to as Decentralized Information Sharing, the retailer and the supplier make their own profit-maximizing replenishment decisions. In the second structure, referred to as Centralized Information Sharing, the replenishment decisions are coordinated. The latter supply chain structure corresponds to the industry practice of 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 order quantity restrictions. 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 supplier's 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.
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