The Impact of Supplier Inventory Service Level on Retailer Demand

Nathan Craig (), Nicole DeHoratius () and Ananth Raman ()
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Nathan Craig: Fisher College of Business, Ohio State University, Columbus, Ohio 43210
Nicole DeHoratius: Booth School of Business, University of Chicago, Chicago, Illinois 60637
Ananth Raman: Harvard Business School, Boston, Massachusetts 02163

Manufacturing & Service Operations Management, 2016, vol. 18, issue 4, 461-474

Abstract: To set inventory service levels, suppliers must understand how changes in inventory service level affect demand. We build on prior research, which uses analytical models and laboratory experiments to study the impact of a supplier’s service level on demand from retailers, by testing this relationship in the field. We analyze a field experiment at the supplier Hugo Boss to determine how the supplier’s inventory service level affects demand from its retailer customers. We find increases in historical fill rate to be associated with statistically significant and managerially substantial increases in current retailer orders (i.e., demand, not just sales). Specifically, a one percentage point increase in fill rate, measured over the prior year, is associated with a statistically significant 11% increase in current retailer demand, controlling for other factors that might affect retailer demand. We explore the drivers of this demand increase, including changes in retailer assortment and order frequency. We discuss features of a retail buyer’s decision context identified through our field work that may explain the magnitude of the relationship we observe.

Keywords: supply chain management; retailing; empirical research; inventory theory and control (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:18:y:2016:i:4:p:461-474

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