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THE VALUE OF INFORMATION SHARING IN A TWO-STAGE SUPPLY CHAIN WITH PRODUCTION CAPACITY CONSTRAINTS: THE INFINITE HORIZON CASE

Published online by Cambridge University Press:  16 April 2004

David Simchi-Levi  and
Yao Zhao
David Simchi-Levi
Affiliation:
The Engineering Systems Division and the, Department of Civil and Environmental Engineering, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139, E-mail: dslevi@mit.edu
Yao Zhao
Affiliation:
Department of Management Science and Information Systems, Rutgers University, Newark, New Jersey 07102-1895, E-mail: yaozhao@andromeda.rutgers.edu
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Abstract

We study the value of information sharing in a two-stage supply chain with a single manufacturer and a single retailer in an infinite time horizon, where the manufacturer has finite production capacity and the retailer faces independent demand. The manufacturer receives demand information even during periods of time in which the retailer does not order. Allowing for time-varying cost functions, our objective is to characterize the impact of information sharing on the manufacturer's cost and service level. We develop a new approach to characterize the induced Markov chains under cyclic order-up-to policy and provide a simple proof for the optimality of cyclic order-up-to policy for the manufacturer under the average cost criterion. Using extensive computational analysis, we quantify the impact of information sharing on the manufacturer's performance in an infinite time horizon under both i.i.d. demand and independent but nonstationary demand.

Type
Research Article
Information
Probability in the Engineering and Informational Sciences , Volume 18 , Issue 2 , April 2004 , pp. 247 - 274
Copyright
© 2004 Cambridge University Press

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Footnotes

Research supported in part by ONR contracts N00014-95-1-0232 and N00014-01-1-0146 and NSF contracts DMI-9732795, DMI-0085683, and DMI-0245352.

References

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