The impact of supply learning on customer demand
Subtitle: model and estimation methodology
By: Nathan Craig, Nicole DeHoratius, Ananth Raman
Contributors: DeHoratius, Nicole; Raman, Ananth; Harvard Business School
Series: Working paper / Harvard Business School -- 11-034; Working paper (Harvard Business School) -- 11-034.
Publisher: Harvard Business School
Published: 2010
Place of publication: [Boston]
Language: eng
Number of pages: 34
Description: To set service levels, firms must understand how changes in service affect customer demand. Supply learning is a process whereby customers use past supplier performance to build beliefs about supplier capabilities and hence about future supplier performance. This paper presents a multi-period model of service level competition among suppliers selling substitutable products to a customer that engages in supply learning. We observe how a supplier's service level performance molds a customer's beliefs as well as how a customer's beliefs affect its order quantities. We identify two dimensions of supplier performance: consistency, the probability that a supplier delivers in the current period conditional on availability in the prior period, and recovery, the probability that a supplier delivers in the current period conditional on a stockout in the prior period. We also provide a method for estimating the impact of changes in supplier performance along these two dimensions on customer demand. Using data from Hugo Boss, a manufacturer of branded apparel, we find increases in consistency and recovery to be associated with increases in orders from Hugo Boss's retailer customers.
Notes: "September 2010"--Publisher's website.

Includes bibliographical references.