Value of information in closed loop supply chains

Michael E. Ketzenberg*, Erwin Van Der Laan, Ruud H. Teunter

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

110 Citations (Scopus)


We explore the value of information (VOI) in the context of a firm that faces uncertainty with respect to demand, product return, and product recovery (yield). The operational decision of interest in matching supply with demand is the quantity of new product to order. Our objective is to evaluate the VOI from reducing one or more types of uncertainties, where value is measured by the reduction in total expected holding and shortage costs. We start with a single period model with normally distributed demands and returns, and restrict the analysis to the value of full information (VOFI) on one or more types of uncertainty. We develop estimators that are predictive of the value and sensitivity of (combinations of) different information types. We find that there is no dominance in value amongst the different types of information, and that there is an additional pay-off from investing in more than one type. We then extend our analysis to the multi-period case, where returns in a period are correlated with demands in the previous period, and study the value of partial information (VOPI) as well as full information. We demonstrate that our results from the single period model (adapted for VOPI) carry-over exactly. Furthermore, a comparison with uniformly distributed demand and return show that these results are robust with respect to distributional assumptions.

Original languageEnglish
Pages (from-to)393-406
Number of pages14
JournalProduction and Operations Management
Issue number3
Publication statusPublished - 2006
Externally publishedYes


  • Inventory control
  • Supply chain management
  • Value of information

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