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Value of and Interaction between Production Postponement and Information Sharing Strategies for Supply Chain Firms
Author(s) -
Cavusoglu Hasan,
Cavusoglu Huseyin,
Raghunathan Srinivasan
Publication year - 2012
Publication title -
production and operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.279
H-Index - 110
eISSN - 1937-5956
pISSN - 1059-1478
DOI - 10.1111/j.1937-5956.2011.01286.x
Subject(s) - postponement , information sharing , supply chain , production (economics) , business , incentive , industrial organization , value of information , private information retrieval , value (mathematics) , stock (firearms) , microeconomics , marketing , economics , computer science , mechanical engineering , computer security , mathematical economics , machine learning , world wide web , engineering
We analyze the value of and interaction between production postponement and information sharing, which are two distinct strategies to reduce manufacturers’ uncertainty about demand. In both single‐level and two‐level supply chains, from the manufacturer's perspective, while information sharing is always valuable, production postponement can sometimes be detrimental. Furthermore, the value of production postponement is not merely driven by savings in inventory holding cost as postponement enables the manufacturer to avoid both excess and shortfall in production. We find that production postponement and information sharing strategies may substitute , complement , or conflict with each other, depending on the extent of the increase in the unit production cost when production is postponed. In a two‐level supply chain, from the retailer's perspective, information sharing and production postponement can be beneficial or detrimental. When information sharing is beneficial to the retailer, the retailer always shares her demand information with the manufacturer voluntarily. In addition, this voluntary information sharing is truthful because inflated or deflated demand information hurts the retailer through a higher wholesale price or a stock‐out. However, the retailer never shares her demand information voluntarily if the manufacturer has already adopted production postponement because production postponement and information sharing strategies always conflict with each other. Even when the retailer does not benefit from information sharing, we show that the manufacturer can always design an incentive mechanism to induce the retailer to share the demand information, irrespective of whether the manufacturer has already implemented production postponement or not. The above findings underscore the need for a careful assessment of demand uncertainty‐reduction strategies before the supply chain players embark upon them.