Information sharing in a supply chain: A note on its value when demand is nonstationary

In a recent paper, Lee, So, and Tang (2000) showed that in a two-level supp ly chain with non-stationary AR(1) end demand, the manufacturer benefits si gnificantly when the retailer shares point-of-sale (POS) demand data. We sh ow in this paper, analytically and through simulation, that the manufacture r's benefit is insignificant when the parameters of the AR(1) process are k nown to both parties, as in Lee, So, and Tang (LST). The key-reason for the difference:between our results and those of LST is that:LST assume that th e manufacturer also uses an AR(1) process to forecast the retailer order qu antity. However, the manufacturer can reduce the variance-of its forecast f urther by using the entire order history to which it has access. Thus, when intelligent use of already available internal information (order history) suffices, there is no need to invest in interorganizational systems for inf ormation sharing.