A supply chain model with reverse information exchange

We develop a model and analyze reverse information sharing, a growing business practice in supply chain management in which a manufacturer shares information about supply with a retailer. We model the manufacturer as a production queue with finished goods warehouse, the retailer as an inventory location, and other customers as an external demand stream. In our model, the manufacturer allows the retailer access to inventory status at the warehouse. To take advantage of this new information, the retailer changes from a single-level base-stock policy to a two-level, state-dependent base-stock policy. We provide an exact method for computing performance and develop a procedure for evaluating optimal policy. We demonstrate the impact of the new policy on the manufacturer and other customers. Numerical computations lead to insights about the value of information to the retailer, and to guidelines for the manufacturer on sharing information.