Flow coordination and information sharing in supply chains: Review, implications, and directions for future research

Decision Sciences, Fall 2002 by Sahin, Funda, Robinson, E Powell

ABSTRACT

Advances in information technology, particularly in the e-business arena, are enabling firms to rethink their supply chain strategies and explore new avenues for inter-organizational cooperation. However, an incomplete understanding of the value of information sharing and physical flow coordination hinder these efforts. This research attempts to help fill these gaps by surveying prior research in the area, categorized in terms of information sharing and flow coordination. We conclude by highlighting gaps in the current body of knowledge and identifying promising areas for future research.

Subject Areas: e-Business, Inventory Management, Supply Chain Management, and Survey Research.

INTRODUCTION

A supply chain consists of suppliers/vendors, manufacturers, distributors, and retailers interconnected by transportation, information, and financial infrastructure. The supply chain's objective is to provide value to the end consumer in terms of products and services, and for each channel participant to garner a profit in doing so. In addition to the financial and information flows, there is a significant physical flow between supply chain members including raw materials, work-inprocess inventories, finished products, and returned items. Managing these flows effectively and efficiently requires a systems approach to successfully identify, analyze, and coordinate the interactions among the entities. However, attaining supply chain integration is not an easy task. The often-conflicting objectives of the channel members and the continuously evolving dynamic structure of the supply chain pose many challenges for effective system integration.

A better understanding of the benefits of supply chain integration promotes organizational relationships that foster the sharing of technological and strategic efforts. Forrester (1958, 1961) introduces the theory of Industrial Dynamics, which anchors our current understanding of supply chain coordination. A key component of Forrester's management concepts rests on understanding the dynamics of how the delays, amplifications, and oscillations in the flow of demand information adversely affect supply chain operations, most noticeably inventory levels and production rates. Forrester states that management is on the verge of a major breakthrough in understanding how industrial company success depends on the interaction between the flows of information, materials, money, manpower, and capital equipment. The way these five flow systems interlock to amplify one another and to cause change form a basis for anticipating the effects of decisions, policies, organizational forms, and investment choices. Only through this understanding and the continued development of the `tools of progress,' such as today's advances in information technologies, can new management concepts be implemented.

Forrester's concepts were largely neglected until the co-emergence of e-business and supply chain management philosophies in the early 1990s. This renewed interest was precipitated by several successful industry initiatives that exploited the advances in information technology, particularly electronic data interchange, to restructure their supply chains. An early example is Wal-Mart's Retail Link program that connects their suppliers with point-of-sales (POS) data (Stalk, Evans, & Shulman, 1992). In the grocery industry, Kurt Salmon Associates (1993) project a potential $30 billion in supply chain savings from the implementation of Efficient Consumer Response (ECR) strategies. HEB (Clark & Croson, 1994), Campbell Soup (Clark & McKenney, 1994; Cachon & Fisher, 1997), Procter & Gamble (Clark & McKenney, 1995) and Spartan Stores Inc. (Schiano & McKenney, 1996) are innovators in ECR. Quick Response (QR) in the apparel industry is occurring at J.C. Penney (Apte, Lane, Sample, & Vaughn, 1993) and numerous other retailers. Dell Computer's Direct Sell model revolutionized the computer industry (Magretta, 1998). Other national retailers such as Dillard's and J.C. Penney are exploring Vendor Managed Inventory (VMI) programs and report 20-25 percent sales increases with a 30 percent improvement in inventory turnover (Buzzell & Ortmeyer, 1995). While each of these initiatives focuses on improving supply chain performance through information sharing and physical flow coordination, they fail to provide sufficient insight into the underlying principles necessary for theory development.

There is a growing stream of literature attempting to better understand information distortion and physical flows in supply chains. However, there is no systematic framework for organizing these diverse efforts. Hence, we are left with a disjointed scattering of research activity that fails to clearly represent what we currently know and what we still need to learn. Unless we can assimilate these efforts and use them as a platform for continued research, our endeavors toward understanding the underlying principles of supply chain integration and building basic theory will be hampered.