Reverse Information Sharing: Reducing Costs in Supply Chains with Yield Uncertainty

Abstract

Supply uncertainty in produce supply chains presents major challenges to retailers. Supply shortages create frequent disruptions in terms of promised delivery times, quantity and quality delivered. To alleviate these challenges, dual sourcing---a strategy in which buyers source a good from two different suppliers---is commonly employed by retailers in these supply chains. However, the benefits of dual sourcing cannot be fully realized when a lack of transparency exists between retailers and suppliers. In this case, perceived scarcity leads to over-ordering, further exacerbating the problem of supply unreliability in settings where multiple retailers compete for supply. This paper studies a supply chain for a perishable good consisting of N retailers who compete for supply and practice dual sourcing, but do not have transparency to the inventory distributions of their suppliers a priori. The paper develops an analytical model to capture the retailers' ordering dynamics over repeated iterations. When the retailers underestimate the suppliers' inventory, their orders converge to an equilibrium where all retailers drastically over-order. This results in higher retailer costs and supply chain waste, as well as higher costs to the suppliers for certain contract structures and parameters. The paper analyzes the impact of an information sharing scheme in which suppliers share inventory information downstream. This reverse information sharing counteracts perceptions of scarcity thereby reducing over-ordering.

Keywords: information sharing, yield uncertainty, ration gaming, blockchain