Manufacturer Benefits from Information Integration with Retail Customers

TLDR

Information integration efforts between manufacturers and retailers—such as information sharing, synchronized replenishment, and collaborative product design—are widely cited as key drivers of supply‑chain performance. This paper develops a conceptual framework linking information‑integration initiatives to manufacturer profitability. The framework demonstrates that such initiatives influence inventory management and revenue‑enhancing activities, thereby affecting profit margins, and the authors empirically test this using a survey of the food and consumer packaged goods industry, explaining the results within the framework and outlining managerial implications. Analysis shows that different integration techniques affect manufacturer performance differently: vendor‑managed inventory boosts margins, new‑product collaboration raises wholesale prices and reduces stockouts, reverse‑logistics collaboration increases stockouts, and information sharing alone improves performance up to a point, with higher sharing associated with industry‑average profitability.

Abstract

Information integration efforts between manufacturers and retailers, in the form of information sharing, synchronized replenishment, and collaborative product design and development, have been cited as major means to improve supply chain performance. This paper develops a conceptual framework that relates information-integration initiatives to manufacturer profitability. The framework allows such initiatives to impact inventory management and revenue-enhancing measures that, in turn, increase manufacturer profit margins, or affect profit margins directly. Through an extensive survey in the food and consumer packaged goods industry, we empirically examine this framework. The analysis reveals that the various integration techniques are differentially associated with manufacturer performance. Collaborative planning on replenishment, in the form of vendor-managed inventory (VMI), is directly and positively related to manufacturer margins, while collaboration on new products and services is positively related to intermediate performance measures. Specifically, this latter form of collaboration allows the manufacturer to charge higher wholesale prices and, interestingly, is associated with lower retailer, and consequently manufacturer, stockouts. In contrast, collaboration on the handling of excess and defective retailer inventory (i.e., reverse logistics) results in higher manufacturer stockout levels, on average. Solely sharing information on either inventory levels or customer needs is associated with higher manufacturer performance measures up to a certain point; sharing this information is prevalent among manufacturers that achieve industry-average profitability relative to those that achieve below industry-average profitability. The paper explains these results in the context of the conceptual framework developed and discusses the managerial implications for effective coordination between supply chain partners.