Impact of information errors on supply chain performance

This study investigates how information errors affect supply chain performance when a retailer and a supplier share the end‐customer demand information. An Enterprise Resource Planning (ERP) system, often used to share information in a supply chain, is not perfect and often contains erroneous information. Companies contemplating the use of ERP systems must evaluate the benefit of using them despite the existence of errors in the system. Our study quantifies the impact of information errors by comparing the supplier costs with and without errors. Our analytical and computational results indicate that the detrimental impact of errors outweighs the beneficial impact of information sharing when the variance of information errors exceeds the variance of end‐customer demands. Therefore, when that happens, it is best to operate as if the information is not available. Finally, if it is possible to expend effort and reduce information errors, we present an analytical model for determining the optimal level of investment.