Information sharing versus order aggregation strategies in supply chains

Abstract

Purpose The purpose of this paper is to explore how differently aggregated order data may affect inventories and service levels in a serial supply chain and compares the results against various levels of information sharing. By performing sensitivity analysis, critical parameters are identified and conjectures for explaining the divergent results on the value of information sharing in prior literature are given. Design/methodology/approach By using discrete event simulation, the paper analyses various approaches of differently aggregated order data compared to shared demand information. Findings The experiments show that suppliers cannot accurately estimate demand means and variances because of time‐depending order quantities and biasing effects of order inter‐arrival times. This may lead to inappropriate computations of reorder points and safety stocks. The aggregation of order data can improve the calculations resulting in lower inventories with almost identical service levels. The mean inventory can also be reduced by sharing information but may lead to considerably lower service levels. Research limitations/implications As discovered in this paper, simplifications in the supply chain structure may have large effects on the experimental results. Therefore, the value of information sharing and order aggregation strategies should be analyzed in a more complex supply chain network. Practical implications Some ordering mechanisms have the effect of increasing the demand variance for upstream companies. This amplification may lead to inefficiencies throughout the entire supply chain. The paper proposes solutions to managers on how they can benefit from order data aggregation and information sharing. The per period variances may be reduced leading to smaller safety stocks and lower costs for the entire supply chain. Originality/value The paper shows that the performance of a supply chain may be improved by aggregating order data and compares the results with improvements derived from information sharing strategies.

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