Value of information in capacitated supply chains

We incorporate information flow between a supplier and a retailer in a two- echelon model that captures the capacitated setting of a typical supply cha in. We consider three situations. (1) a traditional model where there is no information to Be supplier prior to a demand to him except for past data; (2) the supplier knows the (s, S) policy used by the retailer as well. as t he end-item demand distribution; and (3) the supplier has full information about the state of the retailer. Order up-to policies continue to be optima l for models with information flow for the finite horizon, the infinite hor izon discounted and the infinite horizon average cost eases. Study of these three models enables us to understand the relationships between capacity, inventory,and information at the supplier level, as well as how they are af fected by the retailer's (S - s) values and end-item. demand distribution. We estimate the savings at the supplier due to information flow and study w hen information is most beneficial.