Consistency and Recovery in Retail Supply Chains

Abstract

Practitioners and researchers describe inventory service level using uni-dimensional metrics, e.g., in-stock and fill rate. However, prior research identifies dynamic aspects of supplier performance: consistency (the ability of a supplier to fulfill orders repeatedly) and recovery (the ability of a supplier to fulfill orders after a lapse in service). We develop a method for measuring consistency and recovery, and we test the method in the retail supply chain context using more than 40,000 order and fulfillment records provided by suppliers to retailers in two distinct settings. We model a retailer purchasing from competing suppliers with different levels of consistency and recovery. This model incorporates the retailer's uncertainty about demand and the retailer's uncertainty about its suppliers' service levels, which the retailer assesses using each supplier's prior performance. We characterize how the retailer's orders change with a supplier's performance through numerical experiments designed using field-based data. Specifically, we find pronounced contrasts in market share across suppliers with similar traditional inventory service levels metrics but differences in consistency and recovery. Given the influence of consistency and recovery on supply chain outcomes, we discuss implications for practice and future research.