Supply Chain Inventory Management and the Value of Shared Information

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.supply chain, multi-echelon inventory management, periodic review policies, electronic data interchange

Managing the Flow of Materials Across the Supply Chain

Fundamental to the success of any supply chain is the management of both the material flow of product and the information flow. For any supply chain to be effective, these flows cannot be interrupted or distorted without incurring waste and consuming management time in correcting problems. In addition, the procurement of materials, manufacturing, and distribution of products accounts for the majority of the overall cost and is key to customer service and overall competitiveness. Therefore, the development of a supply chain management capability for modern businesses is a means of contributing to business efficiency, effectiveness, and competitive advantage over rival producers. With the Internet enabling rapid information flow, much of the recent attention has focused on the information flow only, yet even in Internet-enabled supply chains, the overall success still depends on an uninterrupted and efficient physical order fulfilment process. This chapter discuss the basics of both material and information flows and their interactions and concludes with an overview of current challenges and future trends on how to manage efficiently the material flow in the supply chain in the Internet age