Information sharing in inventory management - Applications and potential consequences

Rapport, 2010

The recent development of information technology has made it practically and financially possible for companies to get access to information about their customers’ future demand. The purpose of this paper is to outline various approaches to utilize this kind of visibility when managing inventories of end products on an operative level. The purpose is also to analyze and assess the potential consequences of applying the approaches in distribution networks. Traditional inventory control methods have been enhanced and designed in a way that allow them to utilize various kinds of demand related information that can be accessed from customers. Based on these methods an analysis and assessment of consequences of using them has been carried out by simulation. The simulation is based on randomly generated demand data with a compound Poisson type of distribution. The results from the simulation show clearly that the performance of the various methods to apply demand visibility in operative inventory control varies a lot depending on type of information shared. The results also indicate significant reductions in safety stocks with maintained service levels if the most ap-propriate methods are used while other methods rather contribute to increased bullwhip ef-fects. The study is limited to dyadic relationships in supply chains. It is also limited to distri-bution networks with a rather limited number of major customers and to demand without sea-sonal variations.