Retailer response to wholesale stockouts

TL;DR

This study analyzes how wholesale stockouts impact retailer order fulfillment and future demand, revealing that frequent stockouts reduce fill rates and temporarily affect demand, based on four years of real-world data.

Contribution

It provides the first empirical analysis of retailer responses to wholesale stockouts using actual historical data, highlighting short-term demand effects.

Findings

Stockouts decrease order fill rates for frequent customers.

Stockouts temporarily reduce future demand frequency.

The impact on demand is more short-term than long-term.

Abstract

The purpose of this paper is to identify the immediate and future retailer response to wholesale stockouts. We perform a statistical analysis of historical customer order and delivery data of a local tool wholesaler and distributor, whose customers are retailers, over a period of four years. We investigate the effect of customer service on the order fill rate and the rate of future demand, where the customer service is defined in terms of timely delivery and the fill rate is defined as the fraction of the order that is eventually materialized, i.e., is not cancelled following a stockout.We find that for customers who order frequently, stockouts have an adverse effect on the fill rate of their orders and on the frequency but not the value of their future demand; however, this latter effect seems to be more short-term than long-term. Practically all studies on the effects of stockouts measure immediate reported/intended consumer purchase incidence and choice decision behavior in response to stockouts in retail environments, mostly based on surveys. This study looks at how stockouts affect future demand in a wholesale environment, based on historical behavioral data analysis.