Information Sharing in a Manufacturer-Supplier Relationship: Suppliers' Incentive and Production Efficiency
Production and Operations Management, Forthcoming
Posted: 15 Sep 2014
Date Written: September 13, 2014
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
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