Int J Adv Manuf Technol (2012) 58:397409 DOI 10.

1007/s00170-011-3389-0

ORIGINAL ARTICLE

Impact of information sharing on supply chain performance

David C. Hall & Can Saygin

Received: 2 April 2009 / Accepted: 16 May 2011 / Published online: 31 May 2011 # Springer-Verlag London Limited 2011

Abstract In this study, the effect of information sharing on on-time delivery rate and total cost in a supply chain is investigated via simulation. The experimental factors include capacity tightness, resource reliability, and information sharing modes, which are sharing of resource reliability information, customer demand, and inventory level. The simulation results show that all three experimental factors are statistically significant. Yet, the information sharing modes perform uniquely when the main and interaction effects are analyzed. This study demonstrates that the level of interaction between capacity tightness, resource reliability, and information sharing modes depend on the operational parameters, as well as the flexibility available in a supply chain. Therefore, it may be more feasible to introduce additional flexibility instead of solely focusing on information sharing capability as a coordination tool. Keywords Supply chain management . Supply chain dynamics . Enterprise resource planning . Manufacturing information systems . Inventory management . Simulation

1 Introduction A supply chain can be viewed as a network of business partners and their facilities that perform the procurement of
D. C. Hall Management Department, Clemson University, 101 Sirrine Hall, Clemson, SC 29634, USA e-mail: dchall@clemson.edu C. Saygin (*) Mechanical Engineering Department, The University of TexasSan Antonio, One UTSA Circle, San Antonio, TX 78249-0670, USA e-mail: can.saygin@utsa.edu

raw material, its transformation to intermediate and endproducts, distribution, and selling of the end-products to end customers. A supply chain is a complex system, which involves multiple entities encompassing activities of moving goods and adding value from the raw material stage to the final delivery stage [32]. Different entities in a supply chain operate subject to different sets of constraints and objectives, which are highly interdependent when it comes to improving performance of the supply chain in terms of objectives, such as on-time delivery, quality assurance, and cost minimization. Therefore, performance of any entity in a supply chain depends on the performance of others and their willingness and ability to coordinate activities within the supply chain [10, 57]. Advances in information technology enable information availability [6], which facilitates communication, coordination, and collaboration among supply chain partners through information sharing [16]. Supply chain management literature reveals that through better information linkages among business partners, various deficiencies, which include long lead times, large batch sizes, high inventory levels, slow new product design and development, and long order fulfillment cycles, can be mitigated or reduced [8, 9, 17, 19, 31, 38]. Even though information sharing can be extremely beneficial, it is not sufficient to fully reduce the impact of uncertainty inherent to supply chain dynamics. For instance, since Forrester s work on the bullwhip effect (1961), there has been a long debate and unsettled dispute on whether or not sharing information is always beneficial to avoid it [4]. In addition, researchers have also noted that the benefits of information sharing depend on the type of information, as well as the demand patterns and capacity constraints [9, 10, 17, 31, 38]. In this study, the effect of information sharing among business partners on on-time delivery rate and total cost is investigated via simulation of a generic, hypothetical

398

Int J Adv Manuf Technol (2012) 58:397409

supply chain model. While information sharing in the supply chain has been researched extensively, the effect of sharing of resource reliability information (i.e., occurrence of various failures and equipment breakdowns) on supply chain performance has not. The experimental factors are (1) capacity tightness (three levels), (2) reliability (three levels), and (3) information sharing modes, which are sharing of reliability information, customer demand, and inventory level. This paper is organized as follows: A literature survey on supply chain dynamics is presented in Section 2. Experimental factors, along with a brief literature on information sharing, are outlined in Section 3. Development of the model is explained in Section 4. Experimental results are discussed in Sections 5 and 6. Conclusions are presented in Section 7.

De Souza et al. [14] define supply chain dynamics in two parts: (1) dynamics of orders as the difference between a firms response and the demand and (2) dynamics of inventory as the difference between the firms expected inventory level and actual inventory level. They expand on Forrester s conclusion and define seven causes of the supply chain dynamics: 1. 2. 3. 4. 5. 6. 7. Rationing and short gaming Capacity constraints Information delay Poor coordination Material delay Demand signaling Order batching

2 Supply chain dynamics Supply chain management has been studied by many researchers. In addition to traditional supply chain management topics, such as operational planning, strategic planning, and logistics, the literature includes a variety of studies that investigate supply chain management from different perspectives: supply networks [45], chaos perspective [32], risk management [11, 53], supply chain dynamics [14, 57], uncertainty [19, 29, 61, 66], classification and taxonomy issues [28, 36], and e-commerce [26]. For an extensive review of the relevant literature, please refer to Min and Zhou [46], Huang et al. [31], Goknur and Turan [25], and Chan and Chan [10]. Making decisions in a supply chain involves a feedback process triggering interaction between system entities; a time delay is observed when there is a lag between when a decision is made and when its effect is felt, which often further complicates the interaction between entities. As studied by Forrester [18], who discovered the fluctuation and amplification of demand from downstream to upstream of the supply chain, feedbackinteractiondelay are inherent to many processes in a supply chain, inducing variability, uncertainty, and instability that make supply chain a complex, dynamic system [4, 31, 32]. In the context of system dynamics, a supply chain can be defined as a chain of consecutive, sequentially interdependent local transaction systems [48]. The interdependency in supply chains leads to conflicting, local objectives, and thus, trade-offs must be managed properly through cooperation and collaboration [10, 19]. As one of the pioneers in this area, Forrester [18] lists oscillation in order and demand, amplification in order and inventory, and time lag in order and material flow as the three aggregate behaviors that affect supply chain dynamics.

The above-mentioned factors introduce uncertainty that propagates through the supply chain. Davis [13] classifies uncertainty under supply, manufacturing process and demand sides of the supply chain. Mason-Jones and Towill [44] add control systems uncertainty to Daviss classification. Van der Vorst and Beulens [62] define supply chain uncertainty as follows: Supply chain uncertainty refers to decision making situations in the supply chain in which the decision maker does not know definitely what to decide as he is indistinct about the objectives; lacks information about (or understanding of) the supply chain or its environment; lacks information processing capacities; is unable to accurately predict the impact of possible control actions on supply chain behavior; or, lacks effective control actions (noncontrollability). The sources of supply uncertainty are globalization, specialization, and outsourcing [12, 23]. Globalization and specialization combine to make a potentially volatile situation. Globalization of manufacturing processes is often due to some competitive advantage to be gained by globalizing. Specialization of production facilities leads to economies of scale. To gain economies of scale and competitive advantage, these two are often done in tandem. Specialization and globalization also both have a tendency to increase travel distance for products and transportation time, which in turn increases inventories in transit. Specialization comes at great risk because co-located production increases uncertainty about supply in politically unstable environments or impending natural disasters. Outsourcing of processes is known to reduce the control of the overall process to a manufacturing firm. Supply uncertainty is described as being supply risk. Supply risk as well as uncertainty characteristics can have an empirical representation [72]. Qualitative analysis is the preferred method because of the difficulties in quantifying the risk characteristics [46]. Qualitative evaluation of supply uncer-

Int J Adv Manuf Technol (2012) 58:397409

399

tainty, strategy, and risk mitigation are the suggested methods to handle supply uncertainty [12, 44]. Manufacturing (i.e., process) uncertainty has been extensively studied in the literature and sources of internal uncertainty are well-known and typically managed within a manufacturing environment [42, 63, 64]. The primary source of internal uncertainty is equipment failure, which causes downtime. Preventative maintenance and conditionbased maintenance techniques have become standard practice [59, 68]. Maintenance affects the mean time to failure (MTTF); thus, availability is affected by maintenance. Prognostic systems are being investigated to better predict failures before they happen [43]. In addition to mechanical type of failures, other causes of irregular failures include labor strikes, political unrest, and natural disasters, which may affect the performance of a facility and the overall performance in a supply chain. Demand uncertainty has been widely addressed in the literature [30, 33, 34, 50]. Customer demand is driven by customer consumption habits, customer expectations, and product knowledge. Thus, future customer demand is difficult to accurately predict. Uncertain demand can be managed by make-to-order systems, which depend on high level of customization capability and shorter lead times, while a stable demand environment can be managed by make-to-forecast systems, which rely on relatively large inventories created based upon forecast to provide standardized products. Most supply chains operate in between these two extremes; the difference is the amount of product customization or postponement of the product assembly that occurs in the supply chain [67]. Uncertainty and information scarcity describe the typical supply chain environment [16]. Lack of information or insufficient level of information availability [6] leads to incomplete information. Not sharing the information that is available with other entities in the supply chain also creates the same effect [17]. With advanced information technology (IT) tools, such as radiofrequency identification (RFID) systems [9, 15], information can be first made available, which improves operational visibility, and then can be shared at various levels. The information sharing in supply chains literature includes various studies that range from demand information sharing [38, 51] to product information sharing [31] to inventory information sharing [9]. The literature review shows that true information sharing capability facilitated by advanced IT tools is limited by the willingness of the decision makers to share information. However, there is no consensus among the researchers on the actual benefits provided by information sharing. The reasons for the disagreement are due to the differences in supply chain configurations including different manufacturing strategies such as make to order, make to stock, assembly to order [9],

levels and modes of information sharing, information sharing process itself as in the case of auction-based models [1, 56], and timeliness of information shared (i.e., time delay). This paper investigates via simulation the impact of different information sharing modes, subject to capacity constraints in the presence of resource failures, on on-time delivery rate, and total cost in a supply chain.

3 Experimental factors In this study, the effect of information sharing among business partners on the performance of a supply chain is investigated via simulation using three experimental factors: (1) capacity tightness (three levels), (2) reliability (three levels), and (3) information sharing modes (sharing of reliability information, customer demand, and inventory level). The capacity tightness factor provides a level of internal flexibility for a manufacturing enterprise in order to adjust and respond to requirements in supply and demand sides, as studied by Gavirneni et al. [22] and Chan and Chan [9]. The reliability factor introduces uncertainty due to manufacturing-level (i.e., process) breakdowns, which in turn affect capacity and on-time delivery, as emphasized by Cachon and Fisher [5] and Yu et al. [69]. 3.1 Capacity tightness Capacity tightness is defined as follows: Ctightness Total Capacity Total Demand 1

When Ctightness is greater than 1, then the total capacity is adequate to meet the total demand. Conversely, if Ctightness is less than 1, then there is insufficient capacity to meet the demand. Capacity tightness has been studied in the context of information sharing in a supply chain. Studies of capacity tightness with various information sharing modes and find that when capacity tightness is large or small, information sharing does not add any value [21, 22, 70, 71]. Examinations of capacity tightness with real-time order revision over a single production period with a variety of product mix report capacity buffers are not significant under demand uncertainty, when real-time order revision is employed [7]. 3.2 Reliability The reliability on the logistics portion of a supply chain has been sparsely researched. Logistics reliability is synonymous with on-time delivery rate. Originally, mixed integer programming was used to determine cost given supplier reliability on logistics in a pure probabilistic manner

400

Int J Adv Manuf Technol (2012) 58:397409

between supplier and manufacturer [65]. An extension of this examination including the reliability of logistics between suppliers, manufacturers, and distributors overall on-time delivery rate was determined [40]. A review of global logistics systems concludes that supplier reliability has been scarcely explored as a factor of uncertainty [24]. Logistics reliability for contingency planning, where supply and demand are random with deterministic logistics failure rates, concludes that network configuration, information sharing, and network rules affect on-time delivery rate [58]. Supplier reliability has been modeled using two methods: the machine breakdown method and the availability of supplier method. The machine breakdown method focuses on the production and inventory methods of the supplier [2, 3, 41, 47]. The availability of supplier method examines longerterm effects of unavailability on the immediate upstream purchaser [27, 49]. Nonetheless, the focus of these studies is on a single entity only and not the whole supply chain. 3.3 Information sharing modes A study using order, inventory, and customer demand information sharing in a capacitated two-echelon supply chain with a manufacturer and a retailer found information sharing is significant under all conditions [22]. Similarly, across all conditions, capacity is shown to be significant on the reduction of holding costs. Although both capacity and information sharing are significant under every condition, the interaction effects are not studied. Similarly, an analysis comparing customer demand and inventory information sharing versus no information sharing between a retailer and supplier finds that there is a significant improvement when sharing customer demand and inventory information versus no information sharing [5]. However, the improvement is not from information sharing but instead from information technologies that force lead time and batch size reductions. An analytical comparison of a two-echelon supply chain with nonstationary demand comparing no information sharing against customer demand information sharing finds that customer demand information is significantly superior on cost compared to no information sharing [37]. Additionally, customer demand informations superiority is made more evident when lead time is long, customer demand variability is high, or customer demand is auto-correlated over time. A comparison of production schedule combined with customer demand versus no information sharing finds that with customer demand and production schedule information, production is on a make-to-order basis, whereas with no information sharing production is on a make-to-stock basis [20]. Operational and inventory costs are shown to be lower, when production schedule and customer demand information are shared compared to no information sharing.

A comparison of order, inventory, and customer demand information sharing when order intervals and quantities vary finds customer demand information, across all order quantities and intervals, outperforms inventory information and order information on cost and order fulfillment [39]. Similarly, inventory information is significantly better than order information sharing. In a divergent two-echelon supply chain, a study of three modes of information sharingno information sharing, demand information sharing, and order information sharingconcludes that the information sharing modes performance increases with additional visibility [70, 71]. A study using four modes of information sharingno information sharing, partial information sharing, one-way full information sharing, and two-way full information sharing concludes information sharing increases performance with each new mode [60]. No information sharing is where only order quantity externally and subsequently order-up-to level is modified internally. Partial information sharing the distributor shares order prediction information with the first manufacturer. One-way full information sharing distributor shares its end demand information and inventory. Two-way full information sharing between both manufacturer and distributor includes demand information and inventories. An exploration of the sharing of forecasted demand between a manufacturer and multiple retailers finds the forecasted demand from retailers is highly correlated with actual customer demand, and then the manufacturer exhibits significant cost savings [52]. However, if forecasted demand from the retailers is poorly correlated with actual customer demand, then no statistically significant difference in performance between no information sharing and forecasted demand sharing is observed. An exploration of the primary and interaction effects of information sharing on supply chain performance across different divergent supply chain structures limit neighborhood of information sharing to order information, information between retailer and distributor, distributor and manufacturer, and only one case where all information, market demand, safety factor, backlog, order information, and inventory information, is shared among all levels of the supply chain. Information sharing is found to improve performance with different magnitudes depending on the relationship. A study of the effects of order and customer demand information sharing, nonstationary demand, and order-up-to heuristics on supply chain cost finds under nonstationary demand any forecasting technique reduces cost [55]. Customer demand information sharing is shown to significantly outperform order information sharing over all heuristics and nonstationary demand combinations. A summary of studies that focus on information sharing is shown in Table 1. This study focuses on three modes of information sharing: (1) inventory information, (2) customer demand information, and (3) reliability information (i.e.,

Int J Adv Manuf Technol (2012) 58:397409 Table 1 Information sharing in supply chains Reference Level of information sharing No information or only order information Cachon and Fisher [5] Gaonkar and Viswanadham [20] Gavirneni et al. [22] Huang et al. [31] Lau et al. [35] Lee et al. [37] Lin et al. [39] Raghunathan [52] Tu et al. [60] Zhao et al. [71] Reddy and Rajendran [55] This study Inventory information Production schedule Forecast demand Customer demand Reliability information

401

occurrence of various failures and equipment breakdowns). The major contribution of this study is the introduction of reliability information sharing in a supply chain. The supplier reliability information is fed forward to alter the transportation lead time in an attempt to meet the customer delivery due date or to revise the order in real-time with an alternative supplier, when the current supplier is unable to fulfill the order in time. Real-time order revision is an attempt to secure supply for an alternative source, when an irregular failure occurs. Transportation lead time alteration is interpreted as altering the transportation mode, which is implemented to deter due date lateness when an alternative supplier s safety stock is not adequate. Order revision and change in transportation mode both have cost components, which are balanced in lieu of the need to fulfill customer orders on time.

and safety stock are kept at tier 1 and tier 2 suppliers. However, due to delayed differentiation based on a customer order at the Manufacturing and Assembly facility, only finished goods due for shipment are kept in inventory. Similarly, at the Distributor facility, only goods undergoing shipment act as temporary inventory. The goal is to reduce cost while maintaining the highest on-time delivery rate possible. The three information sharing modes affect decision making in the supply chain. Sharing of inventory information affects production and shipment schedules, while customer demand information is used in conjunction with inventory safety stock level, production, and shipment schedules. Sharing of reliability information affects order revision and shipment mode selection related decisions. Inventory information sharing (INV) It consists solely of sharing the order-up-to inventory level and the current inventory level on a daily basis. Inventory information is shared by the immediate downstream business partner in the supply chain with the immediate upstream suppliers. Suppliers then can plan production for the new day based upon the previous days inventory status. The inventory order-up-to quantity is based on the base stock model. The base stock model (R, s, S) uses periodic review, order-up-to-level with nonstationary demand where R is the period of time (performed daily in this study) to check inventory position, s is the reorder point, and S is the stock level. The reorder point (s) is equal to the mean of customer demand (cd) of the Poisson arrivals multiplied by the lead time (L) plus safety stock: s mcd L S 2

4 Model development In this study, a hypothetical supply chain model, as shown in Fig. 1, is developed in order to investigate via simulation the impact of information sharing mode (i.e., inventory information, customer demand information, and reliability information), capacity tightness, and reliability on on-time deliveries and total cost in a supply chain. The hypothetical supply chain model maintains a policy of dual sourcing for supply, which allows the use of alternative suppliers. Two suppliers provide inputs for the subsequent tier. The model has two shipment modes: regular and expedited. Regular shipment mode uses a longer lead time at a lower cost than expedited, which is much faster at a higher cost. Finished goods inventory

402 Fig. 1 Hypothetical supply chain model

Tier 2 Supplier A

Int J Adv Manuf Technol (2012) 58:397409

Tier 1 Supplier A

Tier 2 Supplier B

Manufacturing and Assembly

Distributor

Customer

Tier 2 Supplier C

Tier 1 Supplier B

Tier 2 Supplier D

This replenishment policy uses customer demand from the current period along with historical data to forecast a future inventory level given a safety stock level. Customer demand information sharing (CD) It incorporates the use of real-time customer demand information to determine production and inventory levels. Instead of waiting for orders to perturbate through the various echelons, immediate real-time customer demand is used as a production signal. The reorder point (s) is equal to the forecasted daily usage (FDU) multiplied by the lead time (L) plus safety stock (S): s FDU L S 3

The forecasted daily usage is calculated at the end of each day using a simple moving average of the customer demand. Safety stock is based on three sample standard deviations (3) away from the mean. This safety stock level covers 99.865% of the possible inventory positions. Lead time is fixed at 2 days. The stock level is the present inventory level. Hence, if at any time S > s, production stops until S < s, conversely production occurs until S = s. Reliability information sharing (RI) Procedure assumes that an agreement exists for a percentage of orders to be produced by a supplier with the option to purchase additional units at an excise cost. The option of using RI acts as a hedge against demand and irregular failures by using the existing capacity buffers via order revision. However, by employing the alternative supply source, a transaction cost is incurred. Figure 2 shows the decision-making process for RI.

The decision-making process is triggered by a failure. At that point, the current inventory level is checked and the purchaser is notified. Based upon the orders placed by the purchaser compared with the inventory carried by the supplier, the purchaser can decide to continue with the order or do a real-time order revision based upon the status of alternative suppliers. If the supplier s inventory is adequate to cover the orders, then orders continue with that supplier even though the supplier is offline until the inventory is depleted. Once inventory at a supplier is depleted, then alternative suppliers must be used. If the alternative supplier is offline and also depleted then the first available supplier fulfills the order. If the alternative supplier is online, then an order revision takes place, as well as all orders now go to the supplier until the other supplier resumes its production. The order tardiness decision is made at each stage to reduce potential due date deviations. The only RI actionable strategy that the Manufacturing and Assembly facility and the Distributor facility can implement is the alternative transportation mode to reduce due date tardiness. These two echelons of the supply chain are limited because they do not have alternatives available in the model. RI is extensible to any number of alternative suppliers; however, in the conceptual model only, two are used.

5 Experimentation The model described in Section 4 is developed using the Arena simulation platform with decision-making modules implemented in Microsoft Visual Basic. A full 33

Int J Adv Manuf Technol (2012) 58:397409

Orders Temporarily Rerouted to Supplier

403

Resume Orders

Irregular Failure Repaired

Ship Order

No

Order Tardiness

Order Revision with Supplier

Yes Start Purchaser Notification Ship Order Via Alternate Transport Imminent Supply Risk Alternate Supplier Status Online

Irregular Failure Inventory Coverage Status

Purchaser

Yes

No No

Offline

Ship Order

Order Tardiness

Adequate

Supplier Inventory Coverage Status

Inadequate Yes Ship Order Via Alternate Transport

Hold Orders until First Available Supplier

Fig. 2 Reliability information sharing procedure

factorial design is employed to vary the experimental factors of capacity tightness, information sharing modes, and reliability levels as shown in Table 2. For all experimental combinations, ten replications are run. The processing times, failure times, and repair times are stationary stochastic. Inventory is nonstationary, updated daily using a moving average in an order-up-to base stock model. Customer demand arrivals are modeled by a Poisson distribution with parameter , which describes the mean and variance. Production rate is stationary in time, however varies depending on the capacity tightness. Production rate is altered with capacity tightness, instead of customer demand rate. Production rate is normally distributed with a mean and a standard deviation. Firms on the same tier have independent and identically distributed (i.e., iid) production rates. The model parameters are the same for each experimental combination; thus, any differences are a result of the levels of capacity tightness, information sharing mode, and reliability. Reliability temporarily affects the availability of capacity. Firms on the same tier have independent and identically distributed operations, failures, and repairs. Supply reliability is modeled as exponential failures with exponential repairs. Irregular failure is exponentially distributed with parameter 1a, which represents the mean occurrence of failures. The MTTF is:

Z1
0

ela f @ f

1 la

Irregular repair is exponentially distributed with parameter r, which represents the mean repair rate. The mean down time (MDT) is: Z1
0

emr r @ r

1 mr

Therefore, average availability, Aav, can be defined as follows: Aav MTTF MTTF MDT 6

Availability as a function of time, A(t), can be formulated as follows [54]: At mr la ela mr t la m r m r la 7

As time approaches infinity, A(t) reduces to Aav. The reliability-related parameters used in the experimentation are shown in Table 3.

404 Table 2 Experimental factors Levels Factors Capacity tightness level High (1) Medium (0) Low (1) 1.05 1.17 1.33

Int J Adv Manuf Technol (2012) 58:397409

Information sharing modes Reliability information Customer demand Inventory information

Reliability level (%) 100 95 90

An analysis of variance analysis using a 95% confidence interval (i.e., =0.05) is performed to test the significance of the main effects, the two-way interaction effects, and the three-way interaction effect. In addition due to the use of three-factor levels for each parameter, second-order relationships can be observed. Since information sharing mode is categorical, a full-factorial design is required. Experimental combinations are benchmarked on the basis of on-time delivery rate and total cost, as the two performance measures. On-time delivery rate is the number of deliveries completed on time divided by the total number of deliveries. Total cost is the sum of holding cost, transaction cost, and late penalty cost. Holding cost is the cost of having inventory, including work-in process and safety stock, in a facility. Transaction cost is defined as the unit cost of real-time order revision with an alternative supplier and the unit cost of expediting delivery with an alternative transportation mode. Late penalty cost is the cost of making a delivery to the downstream supply chain entity after the specified due date. Each cost component is associated with a coefficient to represent the relative weight. Total cost function (y) can be defined as follows: y cH : XH cT : XT cL : XL 8

6 Results 6.1 Total cost The main and interaction effects are statistically significant, as shown in Figs. 3 and 4, respectively. The main effect of capacity tightness on total cost is small when capacity is abundant at the levels of 1.33 and 1.17, but when capacity becomes tight; the total cost grows at a rapid rate. In addition, excess capacity is found to be statistically significant under RI, which disagrees partially with findings of excess capacity to not be statistically significant under real-time order revision [7]. The findings of the aforementioned study only apply to a single period and across multiple product mixes, which are dissimilar to the conditions studied in this paper. The main effect of information sharing mode on total cost is to reduce the total cost as the amount of information shared increases. Finally, the main effect of reliability on total cost is to increase the cost as reliability decreases. The interaction effect of capacity tightness and information sharing mode slightly affects the total cost when capacity tightness is 1.33, the low factor level (1), representing excess capacity. When capacity tightness is 1.05 or 1.17, the medium (0) and high (1) factor levels, CD and INV information sharing modes have minimal differences on total cost, but RI information sharing mode at capacity tightness of 1.17 has moderate cost savings, and substantial savings when capacity is the tightest at 1.05. Hence if capacity is plentiful, the interaction effect of capacity tightness and information sharing mode has little effect on total cost. As capacity tightness increases, RI has a significant effect on the interaction effect of capacity tightness and information sharing mode on the total cost to reduce it. These results fill in a gap of work by Gavirneni et al. [22] where the main effects of capacity and

where H, T, and L stand for holding, transaction, and late penalty costs, respectively. Similarly, the coefficients for this model are cH =1, cT =5, and cL =10, which assumes that the hypothetical supply chain operates in an environment where cH < cT < cL. The coefficient for holding cost has to be less than the coefficient for transaction cost; otherwise, only transactions would occur and the only inventory would be work-in process. Similarly, the coefficient for the late penalty has to exceed the coefficient on the transaction cost; otherwise, there is no motivation for the supply chain to meet due dates. Under these conditions, generalizations about total cost can be made.

Table 3 Parameters related to reliability

Reliability level 100% 95% 90%

Irregular failure parameter 0 0.01 0.01

MTTF Infinity 100 h 100 h

Irregular repair parameter Not applicable 0.19 0.09

MDT Not applicable 5. 26 h 11.11 h

Int J Adv Manuf Technol (2012) 58:397409 Fig. 3 Main effects plot for total cost (for levels 1, 0, 1, see Table 2)
40000000

405

Main Effects Plot (data means) for Total Cost

Capacity Tightness (A) Information Sharing Mode(B)

30000000

Mean of Total Cost

20000000

-1 40000000

0 Reliability(C)

-1

30000000

20000000

-1

information sharing were significant, but the interaction effects were not explored. This study clearly shows that interaction effects between capacity tightness and information sharing mode depend on the levels of factors; thus, it is closely related to the actual operational aspects of a supply chain. The interaction effect of capacity tightness and reliability on total cost is marginal when capacity is 1.33 across all reliability levels. At capacity tightness of 1.17, reliability

has a small trend on increasing the total cost as the reliability decreases. Substantial reductions in cost are gained under the tightest capacity level of 1.05, as the system becomes more reliable. If capacity is adequate, having highly reliable suppliers makes little difference. However, in a capacity tight environment, reliability gains importance on total cost. Information sharing mode and reliability interact to have an effect on total cost. Across all information sharing

Interaction Plot (data means) for Total Cost

-1 0 1

60000000

40000000

Capacity Tightness (A)

20000000

Capacity Tightness (A) -1 0 1 Information Sharing Mode(B) -1 0 1 Reliability(C) -1 0 1

60000000 40000000

Information Sharing Mode(B)

20000000

60000000

40000000

Reliability(C)

20000000 -1 0 1 -1 0 1

Fig. 4 Interaction plot for total cost (for levels 1, 0, 1, see Table 2)

406 Fig. 5 Main effects plot for ontime delivery rate (for levels 1, 0, 1, see Table 2)
1.0 0.9 0.8 0.7 -1 1.0 0.9 0.8 0.7 -1 0 1 0 Reliability(C) 1

Int J Adv Manuf Technol (2012) 58:397409

Main Effects Plot (data means) for On-Time Delivery Rate

Capacity Tightness (A) Information Sharing Mode(B)

Mean of On-Time Delivery Rate

-1

modes, an increase in reliability leads to a reduction in total cost. Between the CD and INV information sharing modes, there is no significant difference of effects on total cost; however, RI information sharing mode has substantial effect on total cost when compared to the other two modes. 6.2 On-time delivery rate The main and interaction effects are statistically significant on the on-time delivery rate, as shown in Figs. 5 and 6,

respectively. The main effect of capacity tightness is to decrease on-time delivery rate as capacity tightness increases. CD and INV information sharing modes have the same main effect on on-time delivery rate, where RI information sharing mode has a positive effect. The main effect of reliability on on-time delivery rate is to decrease it as reliability decreases. The interaction effect of capacity tightness and information sharing mode on on-time delivery rate has the same slope, but different intercepts between CD and INV

Interaction Plot (data means) for On-Time Delivery Rate

-1 1.00 0 1

0.75
Capacity Tightness (A)

0.50

Capacity Tightness (A) -1 0 1

1.00

0.75
Information Sharing Mode(B)

0.50

Information Sharing Mode(B) -1 0 1 Reliability(C) -1 0 1

1.00

0.75
Reliability(C)

0.50

-1

-1

Fig. 6 Interaction plot for system delivery reliability (for levels 1, 0, 1, see Table 2)

Int J Adv Manuf Technol (2012) 58:397409

407

information sharing modes across all three capacity tightness levels. Capacity tightness acts as a decreasing contribution to the interaction effect as the capacity decreases so does the on-time delivery rate. RI information sharing mode for the low capacity tightness (level of 1.33) shows a slight positive change from the CD information sharing mode. As capacity tightness increases, the slope of the benefit derived from sharing RI on the interaction effect increases. The capacity tightness and reliability interaction effect on on-time delivery rate is mild for the capacity level of 1.33 and gains slope and the intercept shifts downward as capacity tightens. On-time delivery rate is affected by the information sharing mode and reliability interaction effect, which is the same across all levels of reliability and the CD and INV information sharing modes. The on-time delivery rate increases as the reliability increases. The RI mode has a higher intercept and less steep slopes but reacts in a similar fashion as the other information sharing modes.

7 Conclusions In this study, the effect of information sharing among business partners on on-time delivery rate and total cost in a supply chain is investigated via simulation. The experimental factors are (1) capacity tightness (three levels), (2) reliability (three levels), and (3) information sharing modes (sharing of inventory level, customer demand, and reliability information). The simulation study demonstrates that in the supply chain model, capacity tightness, information sharing modes, and reliability are all statistically significant factors affecting the supply chain performance. The information sharing modes (INV, CD, and RI) perform uniquely. The primary difference between INV and CD information sharing modes is the holding cost savings produced by the reduction in demand amplification, while RI information sharing mode recognizes such savings is not the result of the additional information. RI is different from INV and CD, in that RI permits transactions to be made to stave off failure to meet delivery due dates, thus enhancing on-time delivery rate and reducing total cost by avoiding late penalties. In this way, RI information sharing increases customer satisfaction, while reducing costs. This study clearly shows that information sharing, capacity, and reliability can be trade-offs on total cost and on-time delivery rate to a limited extent. The benefit of information sharing is the exchange of low cost real-time data for higher cost physical goods. Information sharing is low cost, but difficult to implement in dynamic or low trust supply chains. In particular, RI information sharing requires a higher level of trust and a degree of stability in supply chain membership. Cooperation, collaboration, and long-

term commitments are required. Excess capacity can eliminate the need for information sharing or reliability, although capacity comes at a high cost. When capacity is excessive, information sharing loses value. When capacity is very tight, information loses its value under the INV and CD information sharing modes. Conversely, RI information sharing mode demonstrates the opposite effect, thus making an argument for RI sharing under all capacity tightness conditions, except excess capacity. In general, as capacity tightness moves from excess capacity to near-full capacity, total cost increases and ontime delivery rate decreases. However, with appropriate level of information sharing within the supply chain, the adverse effects of near-full capacity on cost and delivery can be mitigated to a certain level. This study demonstrates that the level of interaction between capacity tightness, reliability, and information sharing modes depend on the values of operational parameters (i.e., levels of factors) in a supply chain. Monitoring the operational aspects closely and reacting to them in a timely manner can provide business opportunities. Therefore, manufacturing enterprises need to assess the effectiveness of information technology tools, e-commerce practices, and advanced technologies, such as RFID techniques, in terms of operational visibility and information sharing capability not only at their facility level but also at the supply chain in order to gain competitive edge.

References
1. Bajaj G, Saygin C, Grasman SE, Leu M (2006) Performance evaluation of an auction-based job allocation model for small and medium-sized enterprises. Int J Network Virtual Org, Special Issue on Organizing Collaborative Supply Chains and Networks (Editor: Agostino Villa) 2(2):202219 2. Berg M, Posner MJM, Zhao H (1994) Production-inventory systems with unreliable machines. Oper Res 42(1):111118 3. Bin L, Jinhua C (1999) Analysis of a production-inventory system with machine breakdowns and shutdowns. Comput Oper Res 26 (1):7391 4. Bjork K-M, Hejazi A, Carlsson C (2007) The bullwhip effect complexity in theory and in a real-life application. Int J Integr Supply Chain Manage 3(1):86102 5. Cachon GP, Fisher M (2000) Supply chain inventory management and the value of shared information. Manage Sci 46(8):1032 1048 6. Cantor DE, Macdonald JR (2009) Decision-making in the supply chain: examining problem solving approaches and information availability. J Oper Manage 27:220232 7. Chakravarty AK, Balakrishnan N (2004) Real-time revision of order quantities with capacity constraint: a single period model. Prod Oper Manage 13(2):171185 8. Chan FTS, Chan HK (2005) The future trend on system-wide modelling in supply chain studies. Int J Adv Manuf Technol 25 (7):820832 9. Chan HK, Chan FTS (2009) Effect of information sharing in supply chains with flexibility. Int J Prod Res 47(1):213232

408 10. Chan HK, Chan FTS (2010) A review of coordination studies in the context of supply chain dynamics. Int J Prod Res 48 (10):27932819 11. Chopra S, Sodhi MS (2004) Managing risk to avoid supply-chain breakdown. MIT Sloan Manage Rev 46(1):5361 12. Christopher M (2005) Logistics and supply chain management: creating value adding networks. Prentice Hall, London 13. Davis T (1993) Effective supply chain management. Sloan Manage Rev Summer 1993:3546 14. De Souza R, Zice S, Chaoyang L (2000) Supply chain dynamics and optimization. Integr Manuf Syst 11(5):348364 15. Delen D, Hardgrave BC, Sharda R (2007) RFID for better supplychain management through enhanced information visibility. Prod Oper Manage 16(5):613624 16. Fawcett SE, Wallin C, Allred C (2009) Supply chain informationsharing: benchmarking a proven path. Benchmarking Int J 16 (2):222246 17. Fiala P (2005) Information sharing in supply chains. Omega 33:419423 18. Forrester JW (1961) Industrial dynamics. MIT, Cambridge 19. Fu, Y., Piplani, R., de Souza, R., and Wu, J., 2000. Multi-agent enabled modeling and simulation towards collaborative inventory management in supply chains. In: Proceedings of the 2000 Winter Simulation Conference, Orlando, Florida, 17631771 20. Gaonkar R, Viswanadham N (2001) Collaboration and information sharing in global contract manufacturing networks. IEEE/ ASME Trans Mechatron 6(4):366376 21. Gavirneni S (2002) Information flows in capacitated supply chains with fixed ordering costs. Manage Sci 48(5):644651 22. Gavirneni S, Kapuscinski R, Tatur S (1999) Value of information in capacitated supply chains. Manage Sci 45(1):1624 23. Giunipero LC, Eltantawy RA (2004) Securing the upstream supply chain: a risk management approach. Int J Phys Distrib Logistics Manage 34(9):698713 24. Goetschalckx M, Vidal C, Dogan K (2002) Modeling and design of global logistics systems: a review of tactical, strategic and design algorithms. Eur J Oper Res 143(1):118 25. Goknur AA, Turan EE (2009) Supply chain performance measurement: a literature review. Int J Prod Res 48:51375155 26. Grieger M (2003) Electronic marketplaces: a literature review and a call for supply chain management research. Eur J Oper Res 144:280294 27. Gurler U, Parlar M (1997) An inventory problem with two randomly available suppliers. Oper Res 45(6):904918 28. Harland CM, Lamming RC, Zheng J, Johnsen TE (2001) A taxonomy of supply networks. J Supply Chain Manage 37(4):2127 29. Ho C-F, Chi Y-P, Tai Y-M (2005) A structural approach to measuring uncertainty in supply chains. Int J Electron Commer 9 (3):91114 30. Hua Z, Li S (2008) Impacts of demand uncertainty on retailer s dominance and manufacturer-retailer supply chain cooperation. Omega 36(5):697714 31. Huang GQ, Lau JSK, Mak K (2003) The impacts of sharing production information on supply chain dynamics: a review of the literature. Int J Prod Res 41(7):14831517 32. Hwarng HB, Xie N (2008) Understanding supply chain dynamics: a chaos perspective. Eur J Oper Res 184:11631178 33. Jung JY, Blau G, Pekny JF, Reklaitis GV, Eversdyk D (2004) A simulation based optimization approach to supply chain management under demand uncertainty. Comput Chem Eng 28(10):20872106 34. Kouvelis P, Milner JM (2002) Supply chain capacity and outsourcing decisions: the dynamic interplay of demand and supply uncertainty. IIE Trans Des Manuf 34(8):717728 35. Lau JSK, Huang GQ, Mak K (2004) Impact of information sharing on inventory replenishment in divergent supply chains. Int J Prod Res 42(5):919941

Int J Adv Manuf Technol (2012) 58:397409 36. Lamming R, Johnsen T, Zheng J, Harland C (2000) An initial classification of supply networks. Int J Oper Prod Manage 20 (6):675691 37. Lee HL, So KC, Tang C (2000) The value of information sharing in a two-level supply chain. Manage Sci 46(5):626643 38. Leng M, Parlar M (2009) Allocation of cost savings in a threelevel supply chain with demand information sharing: a cooperative-game approach. Oper Res 57(1):200213 39. Lin F, Huang S, Lin S (2002) Effects of information sharing on supply chain performance in electronic commerce. IEEE Trans Eng Manage 49(3):258268 40. Lin W, Wu F, Lee Y (2003) An extended reliability model for global logistics systems under uncertain environment. Int J Electron Bus Manage 1(1):4653 41. Liu B, Cao J (1999) Analysis of a production-inventory system with machine breakdowns and shutdowns. Comput Oper Res 26(1):7391 42. Lo LCY, Chung WWC (2007) A study of outsourcing relationship in strategic partnership for production in China. Int J Logistics Syst Manage 3(3):288304 43. Lu H, Kolarik WJ, Lu S (2001) Real-time performance reliability prediction. IEEE Trans Reliab 50(4):353357 44. Mason-Jones R, Towill DR (1998) Shrinking the supply chain uncertainty circle. Inst Oper Manage J Control 24(7):1722 45. Mills J, Schmitz J, Frizelle G (2004) A strategic review of supply networks. Int J Oper Prod Manage 24(10):10121036 46. Min H, Zhou G (2002) Supply chain modeling: past, present and future. Comput Ind Eng 43(12):231249 47. Moinzadeh K, Aggarwal P (1997) Analysis of a production/ inventory system subject to random disruptions. Manage Sci 43 (11):15771588 48. Otto A, Kotzab H (2003) Does supply chain management really pay? Six perspectives to measure the performance of managing a supply chain. Eur J Oper Res 144(2):306320 49. Parlar M, Perry D (1995) Analysis of a (Q, r, T) inventory policy with deterministic and random yields when future supply is uncertain. Eur J Oper Res 84(2):431443 50. Patterson KA, Grimm CM, Corsi TM (2003) Adopting new technologies for supply chain management. Transp Res E Logistics Transp Rev 39(2):95121 51. Raghunathan S (2001) Information sharing in a supply chain: a note on its value when demand is nonstationary. Manage Sci 47 (4):605610 52. Raghunathan S (2003) Impact of demand correlation on the value of and incentives for information sharing in a supply chain. Eur J Oper Res 146(3):634649 53. Rao S, Goldsby TJ (2009) Supply chain risks: a review and typology. Int J Logistics Management 20(1):97123 54. Rausand M, Hoyland A (2004) System reliability theory: models, statistical methods, and applications. Wiley-Interscience, Hoboken 55. Reddy AM, Rajendran C (2005) A Simulation study of dynamic order-up-to policies in a supply chain with non-stationary customer demand and information sharing. Int J Adv Manuf Technol 25(9):10291045 56. Sampath K, Saygin C, Grasman SE, Leu M (2006) Impact of reputation information sharing in an auction-based job allocation model for small and medium-sized enterprises. Int J Prod Res 44 (9):17771798 57. Swaminathan JM, Smith SF, Sadeh NM (1998) Modeling supply chain dynamics: a multi-agent approach. Decis Sci 29(3):607632 58. Thomas MU (2002) Supply chain reliability for contingency operations. In: Proceedings annual reliability and maintainability symposium, Seattle, Washington, pp 6167 59. Tsang AHC (1995) Condition-based maintenance: tools and decision making. J Qual Maintenance Eng 1(3):317 60. Tu Y, Luh PB, Feng W, Narimatsu K (2003) Supply chain performance evaluation: a simulation study. In: Proceedings of the

Int J Adv Manuf Technol (2012) 58:397409 IEEE international conference on robotics and automation, Taipei, Taiwan, 2, pp 17491755 Van Der Vorst JGAJ, Beulens AJM, De Wit W, Van Beek P (1998) Supply chain management in food chains: improving performance by reducing uncertainty. Int Trans Oper Manage 5 (6):487499 Van Der Vorst JGAJ, Beulens AJM (2002) Identifying sources of uncertainty to generate supply chain redesign strategies. Int J Phys Distrib Logistics Manage 32(6):409430 Van Donk DP, Akkerman R, van der Vaart T (2008) Opportunities and realities of supply chain integration, the case of food manufacturers. Br Food J 110(2):218235 Vandaele D, Rangarajan D, Gemmel P, Lievens A (2007) How to govern business services exchanges, contractual and relational issues. Int J Manage Rev 9(3):237258 Vidal CJ, Goetschalckx M (2000) Modeling the effect of uncertainties on global logistics systems. J Bus Logistics 21 (1):95120

409 66. Wilding R (1998) The supply chain complexity triangle uncertainty generation in the supply chain. Int J Phys Distrib Logistics Manage 28(8):599616 67. Yang B, Burns N (2003) Implications of postponement for the supply chain. Int J Prod Res 41(9):20752090 68. Yang SK (2003) A condition-based failure-prediction and processing-scheme for preventive maintenance. IEEE Trans Reliab 52(3):373383 69. Yu Z, Yan H, Cheng TCE (2002) Modeling benefits of information sharing-based partnership in a two-level supply chain. J Oper Res Soc 53(4):436446 70. Zhao X, Xie J (2002) Forecasting errors and the value of information sharing in a supply chain. Eur J Oper Res 40(2):311335 71. Zhao X, Xie J, Leung J (2002) The impact of forecasting model selection on the value of information sharing in a supply chain. Eur J Oper Res 142(2):321344 72. Zsidisin GA (2003) Managerial perceptions of supply risk. J Supply Chain Manage 39(1):1426

61.

62.

63.

64.

65.

Copyright of International Journal of Advanced Manufacturing Technology is the property of Springer Science & Business Media B.V. and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use.