Customer Prioritization Strategies for Distribution Management

Analyses the operational implications of marketing strategies that try to distinguish between high‐ and low‐priority customers. For a high‐priority customer, the distributor is willing to expedite an order from any emergency source. For a low‐priority customer, on the other hand, distributors will back‐order demand. Bases results on a normative model of dealer behaviour developed by the authors. The distributors are assumed to follow a periodic‐review, stochastic‐demand ( s, S ) inventory control policy. The principal constraint is a minimum level of service (fill rate) which reflects the objectives of the manufacturer. Bases the analysis on a complete experimental design where a distinction is made between exogenous (replenishment lead time and expedite cost) and endogenous (achieved service level and customer prioritization) variables. In addition, identifies small and large distributors as a function of the demand parameters. Results highlight policy options available to the manufacturer to increase the service level of the system, and these are dependent on the size and competitiveness of the market.