Optimal Production and the Value of Information in Supply Chain with Uncertain Information

26 Pages Posted: 20 Jul 2006

See all articles by Larry J. LeBlanc

Larry J. LeBlanc

Vanderbilt University - Operations Management

James Hill

Ohio State University (OSU) - Fisher College of Business

Jerry H. Harder

Independent

Gregory Greenwell

Nu-kote International

Date Written: July 14, 2006

Abstract

We present a model for determining the value of information sharing (forecast accuracy) when planning production in a supply chain environment. We examine the interaction of forecast errors, shortage vs. holding costs, and the cost of delaying production in a two-stage supply chain of a single product facing uncertain demand. We report computational results showing how to find the value of improved forecast accuracy. Our model can be used to analyze the cost of strategic changes, such as reducing the cost of backorders or lowering the cost of delaying production. We then develop regression analyses generalizing our results. Our model has convinced Nu-kote International to make a significant investment for improving its forecast accuracy. This investment has resulted in improved service levels and reduced inventory.

Suggested Citation

LeBlanc, Larry and Hill, James and Harder, Jerry H. and Greenwell, Gregory, Optimal Production and the Value of Information in Supply Chain with Uncertain Information (July 14, 2006). Fisher College of Business Working Paper No. 2006-01-002. Available at SSRN: https://ssrn.com/abstract=917918 or http://dx.doi.org/10.2139/ssrn.917918

Larry LeBlanc (Contact Author)

Vanderbilt University - Operations Management ( email )

Nashville, TN 37203
United States

James Hill

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Jerry H. Harder

Independent

No Address Available

Gregory Greenwell

Nu-kote International ( email )

200 Beasley Drive
Franklin, TN 37205
United States

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