Academic journal article Journal of Theoretical and Applied Electronic Commerce Research

Disruptions in Information Flow: A Revenue Costing Supply Chain Dilemma

Academic journal article Journal of Theoretical and Applied Electronic Commerce Research

Disruptions in Information Flow: A Revenue Costing Supply Chain Dilemma

Article excerpt


The integration of supply chains as a mechanism for value creation is largely dependent on continuous flow of real time accurate information from the customer back upstream to the manufacturer. This ideal is often unachievable when disruptions in the flow of information and materials are known to regularly occur in some manufacturing supply chains. This paper focuses on quantifying the potential lost sales revenue attributed to information and material delays in a supply chain using discrete event simulation of the Beer Distribution Game.

Results indicate a direct relationship between lost sales revenue and delay times. When exposed to several levels of delay such disruptions will cause loss of sales revenue. Interestingly, data collected suggests that information delays play a larger role than material delays as a contributor to lost sales revenue.

This study provides a solid platform to further justify the implementation of technology such as RFID in an effort to decrease the level of lost sales revenue in manufacturing supply chains. The implementation of technologies that will increase the speed of information flow throughout a supply chain as well as increasing visibility of inventory in the supply chain can assist to minimise lost sales.

Key words: Simulation, Supply Chain Management, RFID, Beer Distribution Game

1 Introduction

Supply Chain Management (SCM) emphasizes the close coordination of the business units in the chain [41]. In most cases, even minor disruptions in a supply chain have the potential to significantly decrease a firms' performance [21]. Declines in supply chain performance can have many sources, which can be attributed to individual decision-making. Each decision can potentially create or compound a perturbation in the flow of materials and/or information in a supply chain. These situations can originate times of undesirable stock levels, tying up significant resources and lowering the efficiency and effectiveness of any member operating in a supply chain, ultimately presenting as opportunity costs at the retail end of the supply chain. Failure to commit to effectively integrating and managing a supply chain is a significant source of inefficiencies for firms [6]. In a competitive business environment, supply chains are quickly realising that increasing uncertainty in market expectations, quantum leaps in technology and globalisation of supply chains, the customer is still king [56].

This study quantifies the impact of information distortion from the perspective of the end customer; more specifically, the costs generated from inefficient operations within a supply chain to those costs associated with lost revenue from unfulfilled customer orders. As such, three research questions have been developed;

1. What is the magnitude of the opportunity cost from incomplete or missing customer orders in a simplified supply chain simulation?

2. How do increases in information delay times affect levels of opportunity cost?

3. What possible solutions can be recommended to minimise losses in revenues?

The popular beer distribution game was simulated using standard ordering policies and the costs of lost sales from retailer stock outs were quantified with several customer ordering patterns. This study contends that opportunity costs at the retailer's end of a supply chain are as important as costs incurred due to inefficient SCM. In addition, the level of information delays also are seen to contribute significantly to the opportunity costs, in a similar manner as they contribute to supply chain costs. The importance of these lost sales contributes to supply chain understanding by examining the downstream impact of inadequate information sharing with the customer, in turn identifying the need for adoption of emerging information technologies such as RFID as a tool for minimising lost sales and generating customer retention through better information flow. …

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