A Research Problem for Game Theorists

Here's a research question for game theorists and transaction cost economists. Why does one see more cases of information sharing in supply chains that span only a single transaction boundary than cases of information sharing spaning more than a single transaction boundary?

Information sharing in supply chains introduces many game-theoretic problems.

My interest was drawn to this topic as part of some research I was doing for Oliver Williamson as part of an independent project. I was trying to apply the principles of transaction cost economics to a particular problem in supply chain management. The result was a paper that I have not published. The main issues the paper addresses are indeterminacy in demand variations and how these variations propagate and magnify upstream of a supply chain.

The magnification of the demand variations upstream of a supply chain is called the bullwhip effect. It is known that in the case where all demand values at all stages of the supply chain are known up and down the supply chain, bullwhip approaches a minimum value dictated by the temporal responsiveness of the dynamic system that models the supply chain.

However, empirical research shows that such availability and distribution of information throughout the supply chain rarely holds in supply chains in the real world.

There's a 1999 book published by Council of Logistics Management that I borrowed about two years ago from Sun Library here on its Santa Clara campus. It is called Keeping Score: Measuring the Business Value of Logistics in The Supply Chain. The book shares the result of some case studies focused on information sharing in supply chains.

Case-study interviews with 22 companies uncovered no examples in which more than two companies were working together to measure logistics processes jointly. It appears that the overriding majority of inter-company logistics measurement programs invovle two copmanies—a manufacturer and a key supplier or customer—but not a manufacturer and a key supplier and a key customer.

So, why is it, from a game-theoretic or transaction cost economics point of view, that this is so?

Comments:

Depending on your product and key customer type, the logistics may change drastically or not at all from Manufacturer to Customer. However, the logistics between key Suppliers and Manufacturers is generally much simpler and fixed in stationary locations for much longer periods of time.

Also, many Supplier & Manufacturer arrangements have long-term contracts whereas Customers generally don’t have contracts and have the option to buy from whoever has the lowest price, is more convenient, or has the greatest product features.

Additionally, many Manufacturers may feel sharing their customer lists with their suppliers could turn into a competitive threat, again, depending on the type of product(s).

-Keep up the good finance/business banter!

Posted by Wes Williams on March 16, 2006 at 12:10 AM PST #

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