Title: The impact of supplier reliability tracking on customer demand
Description: To set service levels, firms must understand how changes in service affect customer demand. Supplier reliability tracking 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 suppliers selling substitutable products to a customer that engages in supplier reliability tracking. Using this analytical model, 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 also provide a method for estimating the impact of changes in supplier performance on customer demand. Using data from Hugo Boss, a manufacturer of branded apparel, we find increases in supplier reliability to be associated with significant increases in orders from Hugo Boss's retailer customers.