Building and Sustaining Inter-Organizational Information Sharing Relationships : The Competitive Impact of Interfacing Supply Chain Operations with Marketing Strategy

Information technology has radically altered the management of supply chain operations; many business partners who are adjacent on the supply chain can gain from entering inter-organizational information sharing (IOIS) relationships and sharing information that was previously accessible to only one of them. This situation is typical in retailer-supplier logistics management relationships. The first part of our study analyzes different forms of virtual integration-relationships between independent companies that result in some of the operations resembling those of a single vertically integrated firm--and classifies them based on their models of information sharing across the supply chain. We find that there are four primary policies that firms adopt when they exchange information across the supply chain; these are EDI, vendor managed inventory (VMI), continuous replenishment (CR) and category management (CM). Typically, corporations view the development of inter-organizational information systems and the sharing of information as being targeted at increasing operational efficiency by reducing ordering costs, inventory costs and supply lead times. Many studies have focused on studying IOIS technology issues and estimating the value generated from these arrangements using traditional models of inventory and ordering costs. However, we find that in a number of cases, the information shared can have cross-functional value--it can also be used to improve a supplier's production planning and to alter their marketing and sales strategies. Paradoxically, however, suppliers who receive such information feel that not only are their benefits minimal, but they often end up worse off than before the IOIS was implemented. The second part of our study explains this paradox. We show how retailers and other buyers can successfully contract to end up with more value than is generated by the sharing of information. Using game-theoretic models of strategic interaction, we show that this effect intensifies as the competitive value of the information to the supplier's marketing and sales departments increases; we demonstrate how the supplier loses more and more value. Furthermore, the buyer need not actually share the information to derive these rents; we indicate why the possibility of sharing is sufficient, even when the buyer cannot independently create value from that information