Elsevier

Computers & Industrial Engineering

Volume 126, December 2018, Pages 269-281
Computers & Industrial Engineering

Information sharing in supply chain collaboration

https://doi.org/10.1016/j.cie.2018.09.042Get rights and content

Highlights

  • Explores information sharing from a strategic view point.

  • Basic question is share or not share, not how to distribute savings after sharing.

  • Based on valuing different aspects of information that might be shared.

  • Game theory and Pareto optimal approaches applied to simple examples.

Abstract

There are well-documented examples of successful, mutually beneficial collaborations in supply chains; however, the failure rate of collaborations that are initiated is surprisingly high. This research focuses on one cornerstone of a successful collaboration, information sharing. The idea is to help companies who are considering a collaborative opportunity to evaluate the value of the information that would be shared so efforts are only expended on potential collaborations that have an acceptable reward for the risk. This proposed methodology is an optimality-based approach that uses game theory and considers information sharing in both the competition-cooperation and coopetition environments. Value is first assigned to information along several dimensions that allows payoff matrices to be constructed. Using these, Nash equilibrium and Pareto optimality are used to provide insights for decision makers.

Introduction

Collaboration is an increasingly important concept in the supply chain because entities have found that, in some situations, working together provides benefits that far exceed risks. A number of relationship types have been tried in many application domains with varying degrees of success; however, the common thread among all of them is the fundamental idea of sharing “knowledge.” Whether it is a retailer sharing point-of-sale data with a supplier or researchers at two companies sharing ideas on the basic structure of materials that could be used for personal armor, the key concept is that knowledge is shared. In this research, the word “information” is used rather than “knowledge” because we believe it is a more descriptive of what happens since the information contains the knowledge that is being shared. The models and analysis are applicable to any situation where knowledge is shared; however, we have chosen to use the word information because it provides a meaningful context within the supply chain and it is the framework others have used for estimating intrinsic value.

Supply chain collaboration (SCC) can assume two different relationship: (1) vertical that is between a supplier and a customer and (2) horizontal that is between companies on the same echelon of a supply chain including between competitors. Vertical collaboration has enjoyed tremendous success in many application domains and is often referred to as a “seller-buyer” situation. For example, Bahinipati and Deshmukh (2012) developed expected cost models to evaluate vertical collaboration in the semiconductor industry. Although this industry has some unique features, their results included advantages of negotiating order size and agreeing to a longer planning horizon that seem more broadly applicable. Esmaeili, Aryanezhad, and Zeephongsekul (2009) use game theory to optimally determine prices, lot size, and the expenditures on marketing. Chakraborty, Chatterjee, and Mateen (2015) is a recent example that illustrates how vertical collaboration as implemented in vendor managed inventory scheme can help coordinate supply chain partners. Further, some vertical collaborations are quite wide spread like vendor managed inventory. The underlying structure is that the retailer shares sales information with the supplier, and the supplier manages the retailers inventory so to meet service level requirement and, often, with less inventory on the shelf. Sharing information in a vertical relationship can also lead to improved efficiency with sequenced delivery of large or important components in automobile assembly as one example.

The literature on horizontal collaboration suggest that it has not enjoyed this kind of widespread implementation and most are specific case studies. Horizon collaboration on landside operation at Schiphol airport provides one example that is typical of the case studies (Ankersmita, Rezaeib, & Tavasszyb, 2014). The is also a stream of research that assumes horizontal collaboration exists and computes the benefits. Lozano et al. (2013), for example, determine the benefits associated with pooling freight for truckload (TL) shipping using a math programming approach to find the optimal loads and game theory to allocate savings. Over the past decade, the Physical Internet has received attention from academics and practitioners as one framework for horizontal collaboration (2011). In 2013, the European Commission adopted the Alliance for Logistics Innovation through Collaboration as an European Technology Platform and providing significant funding for a variety of efforts in collaborative logistics (ALICE, 2016).

On the other hand, the troubling reality is that number of instances of SCC in free markets could, and maybe should, be dramatically larger and the fact is that many attempts fail. Cao, Vonderembse, Zhang, and Ragu-Nathan (2010) identifies several studies that suggest many SCC efforts fail to meet the expectations of the participants and even note that Sabath and Fontanella (2002) concluded SCC had “the most disappointing track record” of supply chain strategies implemented in practice. Evidence also suggests that collaboration efforts are “more likely to fail than to succeed” with participants in a recent survey indicating a 20% success rate for these efforts (Benavides, De Eskinazis, & Swan, 2012). Why?

Since one element required for all collaboration is information sharing, we conjecture that could be a root cause of many failures. This is supported by Cao et al. (2010) who offer an excellent model for SCC that contains seven elements, the first being information sharing. This research notes that various authors have called information sharing the heart, lifeblood, nerve center, essential ingredient, key requirement, and foundation of SCC. Regardless of the metaphor, information sharing is clearly important and, while there are many other factors that also contribute to a collaboration succeeding, failing or producing disappointing results, we suggest that information sharing is arguably the most critical. Barbara, McQuarrie, Schrum, and Teo (2012) noted “Even though collaborative distribution promises significant cost savings and carbon emissions reductions; many industry players have hesitated to adopt collaborative distribution in full. Most prominently, shippers have hesitated to engage in any operations that require sharing shipping data with competitors.”

Some researchers have explored this in more detail with an apparent consensus agreeing with the finding of Wang, Yea, and Tan (2014) that trust is critical to success. Jeng (2015) noted that “…collaborations arguably have the highest failure record of the various supply chain management practices that are currently being applied. Part of the problem has been … lack of trust among partners.”

This poses a conundrum: Maximizing the chances of creating a successful collaboration is predicated on trust but how can trust be built without collaborations. The premise of this research is that building trust will evolve more quickly, and lasting collaborations will be formed sooner, when SCC partners can realistically and quantitatively evaluate the value of the information they have and the potential impacts of sharing it with a partner before expending efforts on SCC. Ayadi, Cheikhrouhou, and Masmoudi (2013) addressed trust and information sharing by developing a fuzzy decision support system to aid decision makers. This is the only research that could be found that addresses the same general problem of this paper and our approach is fundamentally different.

So, the problem that motivates this work begins with fact that collaborations have a very high failure rate. Several studies have explored why collaborations succeed and fail and on key finding is that a long-standing relationship upon which trust has been built is common in many if not most successes. This certainly suggests that an important reason for failures is lack of trust and fear partners becoming competitors. So why not just let partnerships evolve over years? Because dramatically increasing use of horizontal collaboration, particularly on-demand, is a cornerstone of next generation supply chain logistics. Companies can’t afford to wait years to identify a collaboration partner because having the flexibility to change partners as needed in response to changing needs is going to be required for success. Determining a way to improve changes of success in this dynamic environment is the focus of this paper.

Specifically, this research develops a framework for valuing information that could inform decisions about what information to share in a collaborative venture. The structure is not restricted to information in a supply chain; that is, there is nothing unique about the supply chain per se that is needed for this methodology to be valid. On the other hand, the increased demand for horizontal collaboration in the supply chain, especially on-demand between parties that have not built a trust relationship over years of partnering, suggests this application domain is incredibly important. The supply chain not only provided motivation but inherently possesses the context for interpretation. In addition, this research is not intended to be an implementable product; rather, the stylized framework and the methodology seeks to illustrate the types of analysis that can be performed to address the fundamental issues and the results that can be obtained so that the basic ideas could be operationalized by people familiar with how companies make decisions. For example, it is quite possible if not likely that some steps would need to be tailored to specific companies such as interpreting the value dimensions or developing a consist way to parameterize the model using available data.

More precisely, this work takes some core ideas presented by Raweewan and Ferrell (2007) and develops a comprehensive framework with theoretical and numerical insights. The approach used here involves models from game theory to investigate situations in which two and three firms, each possessing one type or piece of information, must decide whether to share this information or not. Each firm wants to gain additional benefit, save cost, or both from collaboration but they also need to maintain core competency and minimize negative-reverse impact from collaboration. In the two-firm situation, the decision is whether to share the information or not, whereas in the three-firm situation each firm may decide to not share information or to share information and with whom. To capture these situations, we use both competition-cooperation and coopetition frameworks. Henceforth, the term “player” will be used to denote the entity (firm or individual) making the decision.

Section snippets

Relevant literature

This section focuses on the literature related to information sharing that are most closely associated with the technical aspects of this paper. Two companies operating in a free market environment historically interact using either a competitive or a cooperative strategy; and these are nearly perfect opposites. While it does not matter if these companies are in horizontal or vertical positions within the supply chain, it is important that they are equals and one party cannot force the other to

Research methodology

Informing decisions regarding the appropriateness of sharing information is relative because the value of information is relative. For example, companies are likely to place less value on information they are receiving than they do on information they are being asked to share. This idea is supported at some level by the fact that information some companies consider central to their competitive advantage is available on the website of a competitor for the world to see. These very practical

Competition-cooperation

This section presents results that are obtained by applying Nash equilibrium and Pareto optimality to a payoff matrix of competition-cooperation in Table 1.

Proposition 1

Sufficient conditions for Nash equilibrium: (DNT, DNT) is an equilibrium of competition-cooperation; however, if va1 = va2 = 0 then (T, T) and (DNT, DNT) are both in equilibrium.

Proposition 2

(DNT, T) is Pareto optimal in competition-cooperation.

Proposition 3

(T, DNT) is Pareto optimal in competition-cooperation.

Proposition 4

(DNT, DNT) is Pareto optimal in competition-cooperation

Examples

To illustrate how the methodology could be used, consider two-company and three-company information sharing where each company possesses one piece of information that is valued with r, va, L, s, and nri.

Conclusions

This research offers a quantitative approach to assessing the value of information relative to sharing with a potential collaboration partner for competition-cooperation and coopetition strategies. The approach is particularly well suited for collaboration where the parties considering collaboration might be routine competitors because it captures risks and benefits.

Closed form analysis as well as numerical examples provide insight into two-company sharing. We addressed the most basic

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