The Impact of Out-of-Stocks and Supply Chain Design on Manufacturers: Insights from an Agent-Based Model

Abstract:In today's competitive environment, consumers have high expectations regarding product availability. Out-of-stock (OOS) occurrences can have a detrimental impact to both retailers and manufacturers in terms of lost sales as well as reduced consumer loyalty. In this article, we investigate the impact of repeated OOS occurrences under different supply chain design scenarios, which mix the channel replenishment strategy with the inventory responsibility for in-store shelf management on the retailer versus on the manufacturer. We frame our agent-based simulation to examine the change in manufacturer's market share that results from OOS scenarios not only under different supply chain distribution scenarios (i.e., traditional versus direct store delivery or DSD), but also with different consumer preference characteristics (i.e., high and low brand loyalty) and varied levels of demand. The agent-based simulation allows us to examine the impact of consumer learning under repeated OOS situations. Our results provide new insights for manufacturers regarding repeated supply chain OOS situations.