Information Technology‐Driven Operational Decisions in a Supply Chain With Uncertain Demand and Supply Disruption

ABSTRACT

This paper considers a supply chain consisting of a supplier and a platform, focusing on the platform's information technology (IT) investment and the supplier's pricing strategies under uncertain demand and supply disruption. Two models are developed. The no‐IT investment model is formulated as a nonsmooth stochastic optimization problem and solved using slack variables and quasi‐Monte Carlo approximation. The IT investment model is formulated as a deterministic optimization problem solvable by standard optimization methods. Sensitivity analysis provides several managerial insights. First, IT investment by the platform is often essential and may lead to oversupply conditions that improve profitability for both parties. Additionally, IT investment can significantly reduce losses caused by inventory shortages and supply–demand mismatches, which is particularly beneficial to the supplier. Second, the supplier's optimal pricing increases with the accuracy of demand information enabled by IT. Third, IT investment does not always benefit the supplier. Under moderate supply disruption and when demand exceeds supply, IT investment mainly benefits the platform while potentially harming the supplier. The analysis is further extended in two directions. One extension introduces a model in which demand information accuracy depends on the IT investment level. The results show that when information accuracy increases with the level of IT investment, the investment becomes consistently beneficial to the supplier. Another extension analyzes dual‐supplier competition under an agency model. Using the Gauss–Seidel iteration to compute the Nash equilibrium, the results indicate that high information‐sharing costs can justify IT investment and that such investment improves profits as cross‐price sensitivity increases.