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Value of Information in Capacitated Supply Chains

  • Srinagesh Gavirneni

    (Austin Product Center---Research, Schlumberger, Austin, Texas 78726)

  • Roman Kapuscinski

    (University of Michigan Business School, Ann Arbor, Michigan 48109)

  • Sridhar Tayur

    (Graduate School of Industrial Administration, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213)

Registered author(s):

    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.

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    File URL: http://dx.doi.org/10.1287/mnsc.45.1.16
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    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 45 (1999)
    Issue (Month): 1 (January)
    Pages: 16-24

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    Handle: RePEc:inm:ormnsc:v:45:y:1999:i:1:p:16-24
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