Sharing Logistics Information across Organizations: Technology, Competition and Contracting

Information technology has altered the way companies manage their supply chains, and has resulted in a variety of new inter-organizational logistics management approaches. Many partners who are adjacent on the supply chain can both gain from sharing information that was previously accessible to only one of them; this situation is typical in retailer-supplier interactions. Our study analyzes these different kinds of virtually integrated corporations — independent companies which operate somewhat like a single vertically integrated firm — and classify them based on the impact that the information shared has on the contracting parties. We find that there are four primary levels at which firms can share information. We then investigate how competition and contracting affect the nature of value sharing at each of these levels. Our results indicate that retailers and other buyers can successfully contract to end up with more value than is generated by the sharing of information, and that if the possibility of information sharing exists, then suppliers will end up worse off than before. Using game-theoretic models of strategic interaction, we show that this effect intensifies as the competitive value of the information to the supplier increases-paradoxically, as the value generated by a supplier from information sharing increases, the supplier loses more and more value. Furthermore, we demonstrate that in order to extract the competitive value of information from a supplier, the buyer need not actually share the information; the possibility of sharing is sufficient, even when the buyer cannot create value from that information. We also analyze the effects of other factors such as technology costs and demand uncertainty on these information sharing contracts. Finally, we show that the a critical predictor of the level of information sharing between companies is their relative positions on the supply chain, and that the drivers of the level chosen are relative bargaining power and potential agency costs.