The economic effect of virtual warehouse-based inventory information sharing for sustainable supplier management

Abstract

With the rapid development of information and communication technologies, inventory information sharing between a manufacturer and its suppliers is becoming easier than ever. In line with this trend, we focus on the virtual warehouse where only inventory information on all of the material provided by the suppliers can be stored and shared. Unlike traditional supplier management, the manufacturer constructs and operates this virtual warehouse to check the inventory levels of all the required material at the same time, but each supplier can access only the information about its inventory. This virtual warehouse-based approach can foster a tight relationship between the manufacturer and its suppliers and can handle suppliers as a single company without a large investment in constructing a physical warehouse. The virtual warehouse-based approach seems to be more economically sustainable. To investigate the effect of inventory information sharing via the virtual warehouse, we developed and analyzed a system dynamics-based simulation model. The experiment results show that sharing the inventory information of the suppliers via the virtual warehouse can help manufacturers to achieve better operational performance on several important measures, such as the reduction of finished goods inventory, parts purchasing quantity, degree of backlogs, and total cost.