Horizontal Information Sharing in Omnichannel Operations : Impact of Information Errors

Omnichannel firms regularly share information between their multiple channels (e.g., online vs. physical store), i.e., horizontal information sharing, to improve their operational and financial performance. As information often tends to be error-prone -- when it is collected, transmitted, or both -- a firm may want to re-evaluate their information sharing strategy in the presence of erroneous information. We construct and analyze a multi-period inventory management model with autoregressive uncertain demands that are linked between the two channels of an omnichannel firm. We find that even in the presence of errors, horizontal information sharing can be beneficial to a firm. This is because a channel with limited demand information can improve the accuracy of its demand forecast by leveraging new information from another channel. Through this result, we can explain why many omnichannel firms promptly share demand information across channels. In contrast, we also find that the value of information can become negative at high leadtime. A longer leadtime makes it difficult to accurately predict the leadtime demand, and the information from the other channel is not useful if market factors affect the demands in both channels in a similar way. Our numerical experiments suggest that for a typical omnichannel retailer, sharing information can reduce the long-run average cost by, on average, 2-11% depending on the type of error. When information sharing becomes detrimental, we provide guidance on how investments can be made to mitigate these errors so that omnichannel firms can better achieve their objectives