The Impact of Distribution Channel Decisions and Repeated Stockouts on Manufacturer and Retailer Performance

Product availability is a critical aspect of customer service for retailers and manufacturers. When product is out of stock (OOS), both retailers and manufacturers may suffer depending on the demand-side characteristics, such as whether consumers are more loyal to the store or the brand. While both retailers and manufacturers contribute to OOS situations, the supply-side characteristics, such as whether the retailer or manufacturer is responsible for in-store fulfillment [i.e., traditional versus direct store delivery (DSD) distribution], may impact OOS performance. DSD involves the manufacturer bypassing the retailer's distribution center and delivering product directly to the retailer's individual stores. This paper considers demand- and supply-side issues simultaneously to determine the implications of stockouts for both retailers and manufacturers using an agent-based simulation. An agent-based simulation allows for consideration of these issues under repeated OOS situations to determine the overall impact to retailer and manufacturer performance.