The value of information in a capacitated closed loop supply chain
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abstract
We explore the value of information in the context of a firm that faces uncertainty with respect to demand, product returns, recovery yield, and capacity utilization. Capacity is finite and shared between new production and recovery operations. The operational decisions of interest are the quantity of new product to produce, the quantity of returns to recover, and the quantity of returns to dispose. Product recovery is uncertain in that each returned unit can be successfully recovered with a known probability, and otherwise it is discarded at a cost. Demand in a period is satisfied with new production, recovered returns, or a mix of both types. We measure and evaluate the value of information through three information cases that separately address different types of information: demand, recovery yield, and capacity utilization. We find that there is no dominance in value amongst the different types of information, although information on capacity utilization provides the highest average value and exceeds the value of the other two types of information in 55% of the cases studied. We also identify the operating conditions in which each type of information is most valuable, compare the value of information to other types of investments, and also assess robustness with respect to the accuracy of information. 2008 Elsevier B.V. All rights reserved.
