Inventory Policies and Information Sharing: an Efficient Frontier Approach

44 Pages Posted: 4 Mar 2019

See all articles by Rene Caldentey

Rene Caldentey

University of Chicago - Booth School of Business

Avi Giloni

Independent

Clifford M. Hurvich

Stern School of Business, New York University; New York University (NYU) - Department of Information, Operations, and Management Sciences

Multiple version iconThere are 2 versions of this paper

Date Written: March 01, 2019

Abstract

We consider a two-tier inventory management system with one retailer and one supplier. The retailer serves a demand driven by a stationary moving average process (of possibly infinite order) and places periodic inventory replenishment orders to the supplier. In this setting, we study the value of information sharing and its impact on the retailer’s optimal ordering strategy. We argue that information sharing affects performance through two key cost drivers: (i) on-hand inventory variability and (ii) replenishment order variability. We characterize a “Pareto frontier” between these two sources of variability by identifying optimal inventory replenishment strategies that trade-off one type of variability for the other in a cost efficient way. For the case in which the retailer is able to share her complete demand history, we provide a full characterization of the efficient frontier, as well as of an optimal replenishment policy. On the other hand, when the retailer is not able (or willing) to share any demand information we provide a partial characterization of an optimal solution and show that information sharing does not always add value. We also show that the question of identifying conditions under which information sharing does offer value reduces to a delicate analysis of the invertibility (in a time series sense) of a specific stationary process.

Keywords: inventory control; supply chain management; information sharing; order smoothing

Suggested Citation

Caldentey, Rene and Giloni, Avi and Hurvich, Clifford M., Inventory Policies and Information Sharing: an Efficient Frontier Approach (March 01, 2019). NYU Working Paper No. 2451/43902. Available at SSRN: https://ssrn.com/abstract=3345434

Rene Caldentey (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://www.chicagobooth.edu/faculty/directory/c/rene-caldentey

Avi Giloni

Independent

No Address Available

Clifford M. Hurvich

Stern School of Business, New York University ( email )

44 West 4th Street
New York, NY 10012-1126
United States

New York University (NYU) - Department of Information, Operations, and Management Sciences

44 West Fourth Street
New York, NY 10012
United States

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