Information Sharing in Omnichannel Operations: Impact of Information Errors
48 Pages Posted: 11 Oct 2021 Last revised: 3 Apr 2023
Date Written: March 31, 2023
Abstract
Omnichannel firms often share information between their channels (e.g., between the online channel and a physical store) to improve their operational and financial performance. In reality, the information is often error-prone. We study when such information sharing is advisable if there exist errors in the way the data is collected, transmitted, or both. We construct and analyze a multi-period inventory management model with autoregressive uncertain demands that are linked between two channels of an omnichannel firm. We show that different information errors have different influences. In particular, transmission error always hurts the firm, but source error may sometimes benefit it. Our numerical experiments suggest that for a typical omnichannel retailer, sharing information can reduce the long-run average cost by, on average, 2-11% depending on the type of error. In contrast, we also find that the value of information can become negative when the leadtime is high. A longer leadtime makes it difficult to accurately predict the demand during leadtime, and the information from the other channel is not useful if market factors affect the demands in both channels in a similar way. Our findings provide guidance on when retail managers dealing with erroneous information may want to re-evaluate their information sharing strategy. In cases when information sharing is detrimental, we also inform how investments can be made to mitigate these errors so that firms can better achieve their objectives. By considering source and transmission errors and general leadtimes for an omnichannel retailer, our work also makes a contribution to the literature on information sharing.
Keywords: Information sharing, information errors, omnichannel retailing
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