Abstract

http://ssrn.com/abstract=1679792
 
 

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The Impact of Supplier Inventory Service Level on Retailer Demand


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

May 4, 2015

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

Abstract:     
To set inventory service levels, suppliers must understand how changes in inventory service level affect demand. Although researchers have studied the impact of a supplier's service level on its demand using analytical models and laboratory experiments, this relationship has not, to the best of our knowledge, been tested in the field. We study how the supplier Hugo Boss's inventory service level affects demand from its retail customers. We find increases in historical service level to be associated with statistically significant and managerially substantial increases in current retailer orders (i.e., demand, not just sales). Specifically, upon controlling for other factors that might affect retailer demand, we find a 1 percent increase in this supplier's type 1 service level measured over the prior year to be associated with a 13 percent increase in current retailer demand. Further, we find that retailers that order frequently exhibit a larger reaction to changes in service level, an outcome that is consistent with retailers learning about and responding to changes in the supplier's service level. We discuss features of a retail buyer's decision context identified through our field work that may drive the relationship. We also highlight that suppliers seeking to estimate the relationship between inventory service level and demand in practice can benefit from adopting the methodology presented herein.

Number of Pages in PDF File: 34


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Date posted: September 20, 2010 ; Last revised: May 5, 2015

Suggested Citation

Craig, Nathan and DeHoratius, Nicole and Raman, Ananth, The Impact of Supplier Inventory Service Level on Retailer Demand (May 4, 2015). 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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