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  • Fall 2016
  • Article
  • Manufacturing & Service Operations Management

The Impact of Supplier Inventory Service Level on Retailer Demand

By: Nathan Craig, Nicole DeHoratius and Ananth Raman
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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

Demand and Consumers; Service Delivery; Supply Chain; Order Taking and Fulfillment; Retail Industry

Citation

Craig, Nathan, Nicole DeHoratius, and Ananth Raman. "The Impact of Supplier Inventory Service Level on Retailer Demand." Manufacturing & Service Operations Management 18, no. 4 (Fall 2016): 461–474.
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About The Author

Ananth Raman

Technology and Operations Management
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More from the Authors
  • Operational Disruptions, Firm Risk, and Control Systems By: William Schmidt and Ananth Raman
  • Multiple Team Membership, Turnover, and On-Time Delivery: Evidence from Construction Services By: Hise O. Gibson, Bradely R. Staats and Ananth Raman
  • Nissan's Response to the COVID-19 Pandemic By: Ananth Raman, William Schmidt and Ann Winslow
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