The effects of downstream information acquisition and information disclosure on operational and financial decisions in supply chains

Abstract

Demand information is crucial for supply chain members in making effective operational and financial decisions. Advanced information technologies have enabled numerous retailers to acquire demand information (IA) and disseminate such information (ID) to other members. However, a member’s approaches to this strategic resource of demand information will affect the interactions among supply chain members. Such interactions are due to the interdependence of decisions made by each member in operational, financial and informational dimensions, thus generating the decisional dynamics within supply chains. Based on a supply chain consisting of a supplier (she) and a retailer (he) with IA and ID capabilities, this study investigates how the retailer will develop his approach to IA and ID, and how the approach will affect the decisional dynamics within supply chain. Two scenes are set based on the retailer’s informational approach. The first is due to his capabilities of selectively performing IA and ID for the formulation of information strategy, which involves the interplay of IA and ID approaches. The second considers the retailer delivers the acquired information to all participants, but his IA capability determines the degree of achieved demand uncertainty reduction (DUR), which is an important parameter in related analyses. Given these two scenes, three research problems are identified. The first two problems involve the retailer’s formulation of information strategy with simultaneously considering IA and ID processes; and how these two channel members will behave and interact. Particularly, the second further incorporates the retailer’s financial issues and considers how their behaviour and interactions will differ. The third problem is related to the second scene and concerns how DUR will affect the decisional dynamics in the financially constrained supply chain with alternative financing approaches. To analyse these problems, both members are assumed to be risk-neutral profit maximisers in a non-cooperative game. For the first problem, the retailer is assumed to be well funded. His optimal information strategy and ordering decision and the supplier’s wholesale price are derived under different scenarios, based on the observability of IA and the feasibility of ID. Secondly, the retailer is financially constrained and relies on bank credit financing (BCF). Apart from the above results, the bank’s fairly priced interest rate is derived. Thirdly, the retailer may also use trade credit financing (TCF). His selection between BCF and TCF under the influence of DUR is investigated in the exogenous and endogenous wholesale pricing cases, respectively. The results show the well-funded retailer will choose to perform IA and ID, regardless of the observability of IA, while the financially constrained retailer may not perform IA and ID when IA can be observed. Also, the financially constrained retailer should accept TCF when demand uncertainty is low, trade credit risk premium is moderate, and wholesale price is exogenous and low. However, he should adopt TCF only when demand uncertainty is not low, production cost is not high and wholesale price is endogenous. These results provide the supply chain members with improved demand information with managerial insights to design appropriate operational and financial decisions.