Determination of the optimal degree of information sharing in a two-echelon supply chain

Information sharing is beneficial for supply chains, but often has marginally decreasing impacts on profit due to the costly expense of collecting more detailed information. This study aims to determine the optimal degree of information sharing with consideration of the trade-off between the cost of collecting information and the benefits gained by utilising it to enhance the profit of a two-echelon supply chain. Based on the analytical results, the profit that the supplier gains from information sharing can stem from the decrease in inventory cost after having more accurate information about demand. Furthermore, the impacts that the cost of collecting information has on the optimal degree of information sharing are investigated, and the results show that the optimal degree of information sharing is positively correlated to the correlation of successive market demand, that is, when the demand for successive periods is more correlated, information sharing becomes more valuable, and hence the optimal degree of information sharing increases.