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 partnerswho 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 inretailer-supplier logistics management relationships. The first part of our study analyzes different forms of virtualintegration - relationships between independent companies that result in some of their operations resembling thoseof a single vertically integrated firm - and classifies them based on their models of information sharing across thesupply chain. We find that there are four primary policies that firms adopt when they exchange information acrossthe supply chain; these are EDI, vendor managed inventory (VMI), continuous replenishment (CR) and categorymanagement (CM).Typically, corporations view the development of inter-organizational information systems, and the sharing ofinformation as being targeted at increasing operational efficiency by reducing ordering costs, inventory costs andsupply lead times. Many studies have focused on studying IOIS technology issues, and estimating the valuegenerated from these arrangements using traditional models of inventory and ordering costs. However, we find thatin a number of cases, the information shared can have cross-functional value - it can also be used to improve asupplier's production planning, and to alter their marketing and sales strategies. Paradoxically, however, supplierswho receive such information feel that not only are their benefits minimal, but they often end up worse off thanbefore the IOIS was implemented.The second part of our study explains this paradox. We show how retailers and other buyers can successfullycontract to end up with more value than is generated by the sharing of information. Using game-theoretic models ofstrategic interaction, we show that this effect intensifies as the competitive value of the information to the supplier'smarketing and sales departments increases. Besides, as the value that could be generated by the sales and productiondivisions of the supplier increases, we demonstrate how the supplier loses more and more value. Furthermore, thebuyer need not actually share the information to derive these rents; we indicate why the possibility of sharing issufficient, even when the buyer cannot independently create value from that information.The practical contributions of this inter-disciplinary study are manifold. We provide a clear and lucid description ofthe different levels at which organizations share information. We also describe a fairly general modeling frameworkwhich lays the foundation for a deeper analysis of this increasingly important area. Our strategic results demonstratethat a single focus on the technological or operational aspects of IOIS can mislead managers significantly. The truecosts and benefits of these relationships can only be judged by recognizing the cross-functional impact of theinformation flows on the operational architecture, the marketing strategies of the suppliers and buyers, and thenature of competition within the respective organizations' industries.