The Effects of Sharing Upstream Information on Product Rollover

Abstract

The process of introducing new and phasing out old products is called product rollover. This paper considers a periodic-review inventory system consisting of a manufacturer and a retailer, where the manufacturer introduces new and improved products over an in?nite planning horizon using the solo-roll strategy. We consider two scenarios: the manufacturer does not share the upstream information about new-product introduction with the retailer and the manufacturer shares the information. For each scenario, we first derive the decentralized ordering policy and the system-optimal ordering policy with given cost parameters. We then devise an optimal supply chain contract that coordinates the inventory system. We demonstrate that when the inventory system is coordinated, information sharing improves the performance of both supply chain entities. However, this may not be true if the inventory system is not coordinated. We also show that under the optimal contract, the manufacturer has no incentive to mislead the retailer about new-product information in the information sharing model. When demand variability increases, information sharing adds more benefits to the coordinated supply chain. Our research provides insights about coordinating product, financial, and information flows in supply chains with product rollover.

Keywords: information sharing, supply chain coordination, product rollover, contracting and incentives, dynamic programming