Track: Information Technology

Abstract

Manufacturing generally involves enormous uncertainties. Two major uncertainties which influence profit are product demand and process quality. The firm (or the decision maker) has the option to purchase complete demand information at either the lowest or the highest potential prices. Then the demand distribution at each price is updated using Bayesian method. We obtain the value of complete demand information at lowest and highest prices for different market characteristics. The value of information increase as demand is more sensitive to the price. Moreover, attitude toward risk plays a major role on determining the price that has more valuable demand information. In price sensitive demand, risk averse values information more at highest price while risk seeking tends to have a higher value of information at the lowest price. Moreover, we investigate the value of information for five cases where the knowledge and information about demand and price vary. In addition, the value of perfect information helps to evaluate the economical impact of improving process quality.Manufacturing generally involves enormous uncertainties. Two major uncertainties which influence profit are product demand and process quality. The firm (or the decision maker) has the option to purchase complete demand information at either the lowest or the highest potential prices. Then the demand distribution at each price is updated using Bayesian method. We obtain the value of complete demand information at lowest and highest prices for different market characteristics. The value of information increase as demand is more sensitive to the price. Moreover, attitude toward risk plays a major role on determining the price that has more valuable demand information. In price sensitive demand, risk averse values information more at highest price while risk seeking tends to have a higher value of information at the lowest price. Moreover, we investigate the value of information for five cases where the knowledge and information about demand and price vary. In addition, the value of perfect information helps to evaluate the economical impact of improving process quality.