Abstract

http://ssrn.com/abstract=1679792
 
 

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The Impact of Supplier Inventory Service Level on Retailer Demand in the Supply Chain for Functional Apparel Items


Nathan Craig


Ohio State University (OSU) - Fisher College of Business

Nicole DeHoratius


University of Chicago - Booth School of Business

Ananth Raman


Harvard University - Technology & Operations Management Unit

August 12, 2014

Harvard Business School Technology & Operations Mgt. Unit Working Paper No. 11-034

Abstract:     
To set inventory service levels, firms must understand how changes in inventory service level affect customer demand. While the effects of service level changes have been studied empirically at the level of the end consumer, relatively little is known about the interaction between a retailer and a supplier. Using data from a supplier of branded apparel, we show increases in inventory service level to be associated with statistically significant and substantial increases in retailer orders (i.e., demand, not just sales). Controlling for other factors that might affect demand, we find a 1 percent increase in historical inventory service level to be associated with a 13 percent increase in demand from retailers, where historical service level is the type 1 service level performance of the apparel manufacturer over the prior year. Further, retailers that order frequently exhibit a larger reaction to changes in service level, an outcome that is consistent with retailers learning about and reacting to changes in supplier inventory service level. Our study not only provides the first empirical evidence of the impact of changes in service level on demand from retailers but also illustrates a method for estimating this relationship in practice.

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Date posted: September 20, 2010 ; Last revised: August 14, 2014

Suggested Citation

Craig, Nathan and DeHoratius, Nicole and Raman, Ananth, The Impact of Supplier Inventory Service Level on Retailer Demand in the Supply Chain for Functional Apparel Items (August 12, 2014). Harvard Business School Technology & Operations Mgt. Unit Working Paper No. 11-034. Available at SSRN: http://ssrn.com/abstract=1679792 or http://dx.doi.org/10.2139/ssrn.1679792

Contact Information

Nathan Craig
Ohio State University (OSU) - Fisher College of Business ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States
Nicole DeHoratius
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Chicago Booth School of Business Logo

Ananth Raman (Contact Author)
Harvard University - Technology & Operations Management Unit ( email )
Boston, MA 02163
United States
617-495-6937 (Phone)
617-496-4059 (Fax)
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