Information Sharing in a Manufacturer-Supplier Relationship: Suppliers' Incentive and Production Efficiency

Production and Operations Management, Forthcoming

Posted: 15 Sep 2014

See all articles by Ying-Ju Chen

Ying-Ju Chen

Hong Kong University of Science & Technology (HKUST) - Department of Information Systems, Business Statistics and Operations Management

Mingcherng Deng

City University of New York (CUNY) - Baruch College

Date Written: September 13, 2014

Abstract

While there have been vast discussion on the materialistic benefits of continuous improvement from the Toyota and Honda experiences, the academic literature pays little attention to information sharing. In this paper, we construct a dynamic adverse selection model in which the supplier privately observes her production efficiency in two periods and the manufacturer obtains an informative but imprecise signal regarding this private efficiency in the contractual duration. We show that despite the disclosure of proprietary information, the supplier may benefit from information sharing; the supplier's voluntary participation is more likely to occur when the shared information is rather imprecise. This information sharing gives rise to an upward push of the production quantity, but may lead to an upward distortion that ultimately hurts the supply chain. Our study provides interesting implications that may explain the existing Toyota experience.

Keywords: Toyota experience, information sharing, dynamic incentives, mechanism design

Suggested Citation

Chen, Ying-Ju and Deng, Mingcherng, Information Sharing in a Manufacturer-Supplier Relationship: Suppliers' Incentive and Production Efficiency (September 13, 2014). Production and Operations Management, Forthcoming . Available at SSRN: https://ssrn.com/abstract=2495968

Ying-Ju Chen

Hong Kong University of Science & Technology (HKUST) - Department of Information Systems, Business Statistics and Operations Management ( email )

Clear Water Bay
Kowloon
Hong Kong

Mingcherng Deng (Contact Author)

City University of New York (CUNY) - Baruch College ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States

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