Assembly Manufacturing Supply Chain

Exploring the Impact of Delivery Performance on Customer Transaction Volume and Unit Price:
Evidence from an Assembly Manufacturing Supply Chain
David Xiaosong Peng, Associate Professor

University of Houston
C.T. Bauer College of Business
4750 Callhoun Road, Room 334
Houston, TX77204-6021
Email:xpeng@bauer.uh.edu
Tel: 1-713-743-4734 Fax: 1-713-743-4940
Guanyi Lu, Assistant Professor

Oregon State University
490 Austin Hall, College of Business
Oregon State University, Corvallis, OR 97330
Email: Lug@oregonstate.edu
Tel: 1-541-737-3995 Fax: 1-541-737-4890
Electronic copy available at: https://ssrn.com/abstract=2892733

Exploring the Impact of Delivery Performance on Customer Transaction Volume
and Unit Price: Evidence from an Assembly Manufacturing Supply Chain
Abstract
This study examines the effect of delivery performance on customer transactions. We propose
that different delivery performance dimensions (on-time delivery rate, early delivery inaccuracy, late
delivery inaccuracy, and delivery speed) have varying impacts on future customer transaction quantities
and unit prices. We further explore the effect of customer types on the proposed relationships. Trade
customers (resellers) and Original Equipment Manufacturer (OEM) customers generally have different
operational needs for deliveries and therefore may value these metrics differently. Using instrumental
variable regression, we analyze a proprietary transaction-level dataset. The information was compiled by
a Fortune 500 manufacturer from its Heating, Ventilation and Air Conditioning (HVAC) control product
supply chain, consisting of the manufacturer and its customers. The results indicate that measures of
delivery performance affect customer transaction quantity and unit price differently. Furthermore, these
impacts can differ significantly between trade customers and OEM customers. These findings provide
fine-grained insights about tuning delivery capabilities to increase sales volume or boost price.
Key words: delivery performance, customer segments, competitive advantage, purchase behavior,
instrumental variable regression
Received: September 2014; Accepted: December 2016 by Enno Siemsen after four revisions

1. Introduction
In many industries, fast, reliable delivery is a key consideration when a firm selects a supplier
(Handfield and Pannesi, 1992; Viswanadham, 2000). Superior delivery performance can motivate
customers to buy repeatedly or even pay more (Rao et al., 2011). Firms have implemented various
practices to enhance delivery performance. For example, “Fulfillment by Amazon” service allows
Amazon to search identical products from participating third-party sellers and ship items from the
nearest seller, irrespective of who received the order. Participating sellers reported that unit sales
increased on average over 20% due to increased delivery speed (Venturebeat.com, 2014). A study of
business-to-business (B2B) firms by Bain & Company suggests that firms with better delivery
performance can charge a higher price and entice their customers to order more (Mewborn et al., 2014).
However, delivery performance involves multiple dimensions and each dimension may create
value for different customers for different reasons. Despite anecdotal success stories from the press and
the conceptual literature stressing the importance of delivery performance, there is a surprising lack of
detailed empirical research on the impacts of delivery performance in the B2B context. It remains
unclear which delivery performance dimensions managers should prioritize given specific market goals
and customer characteristics. This study attempts to address this question through an analysis of
transaction data collected from a Heating, Ventilation and Air Conditioning (HVAC) control product
supply chain, where delivery service is an important criterion when customers make purchase decisions
(section 4.1 provides details).
Delivery performance includes two high-level dimensions, reliability and speed, which can be
further broken down into four more-detailed dimensions: on-time delivery rate, early delivery
inaccuracy, late delivery inaccuracy, and delivery speed (see Table 1). Each dimension may affect
customers’ operations differently. For example, fast delivery allows buying firms to speed up their
operations, while on-time delivery enables them to plan and coordinate their manufacturing activities
accurately. Manufacturers need to prioritize different dimensions of delivery performance because they
often clash: “Short lead time and a high probability of on-time delivery are fundamentally in conflict
with one another” (Hopp and Sturgis, 2000, p. 771). However, related empirical studies typically only
examine a single dimension or a composite measure of delivery performance (e.g., order timeliness,
Vaidyanathan and Devaraj, 2008). While lumping potentially divergent delivery performance
dimensions into a composite measure makes it difficult to evaluate the impact of a single dimension,
scrutinizing only one dimension may provide incomplete and biased conclusions due to the omission of

other delivery performance dimensions that may affect both the dimension under consideration and the
ultimate order quantity and unit price.
--Insert Table 1 about here--
Prior research uses delivery performance measures that do not allow a detailed and accurate
assessment of how delivery performance affects order quantity and unit price. For example, the effect of
early delivery has not been examined in a B2B setting, although buyers are increasingly demanding
suppliers to deliver within tight time windows (American Society for Quality, 2010). Further, it is
unclear whether customers react differently to large and small delays. Moreover, suppliers may provide
superior delivery performance to large customers and prioritize large orders. Yet prior studies do not
thoroughly control for these effects. Omitted variables such as customer size, product mix, or order size
raise endogeneity concerns. Our detailed and relatively comprehensive measures and a rich set of
control variables, as well as the instrumental variable regression employed in our analysis help us deal
with these drawbacks when estimating impacts of delivery performance on order quantity and unit price.
Additionally, the existing literature focuses on the direct impacts of delivery performance to the
exclusion of important contingency factors (Vickery et al., 1993). Manufacturers usually serve multiple
segments of customers. Different customer segments may value the same delivery performance
dimension differently due to the value propositions they offer their own customers (Kushwaha and
Shankar 2013; Valentini et al., 2011). We differentiate between OEM and trade customers. OEM
customers purchase materials and components in order to make their own products whereas trade
customers are largely distributors who purchase and resell products (Lee, 1996). The two types of
customers potentially have divergent expectations concerning delivery performance (Lee, 1996). For
example, we find that OEMs tend to be more sensitive to late delivery inaccuracy than trade customers,
partly because late delivery disrupts manufacturing operations. In contrast, trade customers are likely to
be more concerned about delivery speed because slow delivery often means loss of business in the resale
context. Without a clear understanding of customers’ expectations, a manufacturer may allocate
resources to improve delivery performance dimensions that are not aligned with customer needs.
This study examines the effects of four detailed delivery performance dimensions on future
transaction quantities and unit prices, and the moderating effects of customer types on these
relationships. In addition, these delivery performance dimensions may affect each other (Hopp and
Sturgis, 2000; Silveira and Arkader, 2007), so including all of them in an integrated model uncovers the
effects of each dimension in the presence of others. The results provide insights on which delivery
performance dimensions should be improved to encourage customers to buy more or pay a higher unit

price.This study also contributes fine-grained research to the existing literature. We construct detailed
measures of delivery performance in both the main and post hoc analyses, including early delivery and
late delivery inaccuracy, late delivery of large and small magnitude, delivery speed with transaction
quantity partialled out, and variability of delivery speed. Our analyses yield several managerially
relevant new insights (e.g., customers generally penalize suppliers only for delays of large magnitude).
Finally, we examine the influences of customer types, and the findings inform the alignment between
operations performance and customer/market needs. Today’s buyers are asking for customized delivery
based on their own assembly needs (The Economist, 2001). This clear understanding of customer
preferences is important for manufacturers to allocate limited resources to meet customer expectations.
2. Literature Review
2.1. Delivery Performance Metrics and Their Impacts
The operations management (OM) literature has a long history of studying delivery performance,
motivated by a growing customer demand for having the right products in the right quantity at the right
time (Fisher, 1997). Many prior studies, however, treat delivery performance as an outcome variable and
examine its antecedents. We include these studies in our review to understand and summarize how
delivery performance metrics are operationalized in the literature. Other research examines impacts of
delivery performance. Our discussion below concentrates on this literature since the focus of our study is
the impact of delivery on order quantity and unit price. Nonetheless, Table 2 summarizes the most
relevant studies of both groups (antecedent- and impact-focused). It also categorizes each group of
studies into three sub-groups: empirical, analytical, and conceptual. We further differentiate between
studies in a B2B context and those in a B2C context.
--Insert Table 2 about here--
Prior studies have primarily differentiated between two high-level delivery performance
dimensions: reliability and speed (Morash et al., 1996; Handfield and Pannesi, 1992). Delivery
reliability refers to “the ability of the firm to deliver on or before the promised scheduled due date”
(Handfield and Pannesi, 1992, p. 60) and is typically measured by on-time delivery rate (Rosenweig et
al., 2003; Morash et al., 1996). Several studies report that on-time delivery rate is positively associated
with financial and market performance. Corbett and Claridge (2002) find that on-time delivery rate is
positively associated with return on assets (ROA) in some countries in a multi-national empirical
inquiry. When their samples are clustered by industry, the influence of on-time delivery rate is only
evident in the electronics and fabricated metal industries. The effects are insignificant in other industries,

perhaps due to the small sample sizes collected from these industries. Morash et al. (1996) illustrate that
on-time delivery rate is associated with return on sales (ROS) and growth in ROS. Rosenweig et al.
(2003) show that on-time delivery rate impacts ROA and customer satisfaction. In a B2C context, failure
to deliver on-time is negatively associated with order frequency and transaction quantity based on the
investigation of an on-line retailer (Rao et al., 2011). However, Rao et al. (2011) only examine the late
delivery dimension of delivery performance. Furthermore, B2C and B2B contexts can be quite different.
It is unknown whether their findings are applicable to B2B contexts.
Notably, all prior studies in the B2B contexts rely on firm-level conceptual measures of delivery
reliability. Using these measures can potentially lead to an underestimation of the true effects due to the
cancellation of variance when data are aggregated at the firm level (Chen and Lee, 2012) and biases
arising from a single respondent, social desirability, etc. Except for one study by Boyaci and Ray (2006),
which explores the joint impact of delivery reliability and speed on maximizing profit per unit time,
analytical studies on delivery reliability exclusively focus on its antecedents under the presumption that
low reliability disrupts operations (Barman and Laforge, 1998).
Delivery speed is typically measured by fulfillment cycle time and its variants (e.g., Rao et al.,
2014). Speedy delivery is an important way the operations function creates customer value (Sawhney
and Piper, 2002). So and Song’s (1998) study of service sectors suggests that promising uniform
fulfillment time can be used as a marketing strategy to attract customers. Li and Lee’s (1994) analytical
model shows that even when competitors have an adequate processing rate, firms with faster processing
and delivery still enjoy a price premium and a larger market share. Morash et al. (1996) show that
delivery speed positively affects growth in return on investment (ROI), growth in ROS, and overall
ROS. In the context of e-commerce, delivery speed is also critical. Griffis et al. (2012) demonstrate
delivery time is associated with purchase satisfaction and the number of referrals for online retailers. In
competing with retail chains with brick-and-mortar outlets, web-only vendors such as Amazon.com will
face a major disadvantage if their delivery systems respond slowly (Ricker and Kalakota, 1999;
Vaidyanathan and Devaraj, 2008). These prior studies examining delivery reliability and/or speed do not
adequately control for order size (larger orders may take longer) or customer purchase volume (firms
may prioritize large orders), raising potential endogeneity concerns.
While the literature generally attests to the importance of delivery reliability and speed (Sawhney
and Piper, 2002), the two dimensions are mainly tested in isolation, even though they may influence
each other. Based on our literature review, only two studies empirically examine both delivery reliability
and speed. Morash et al. (1998) find delivery speed is positively associated with growth in ROI, growth

in ROS, and ROS, while delivery reliability is associated with only ROS and growth in ROS (the two
models are tested separately using the same data). The authors conclude that between delivery speed and
delivery reliability, speed is more conducive to performance growth. Handfield and Pannesi (1992)
examine the antecedents of delivery reliability via survey data and the antecedents of delivery speed via
qualitative interviews. They find reliability can be improved by better planning and scheduling while
speed can only be improved by reducing lead times. Together, the two studies suggest that the
antecedents and impacts of delivery reliability and speed are different. In addition, Hopp and Sturgis
(2000) suggest there is a potential tradeoff between the two delivery performance dimensions in an
"optimal due date" setting—promising a short fulfillment cycle time reduces the probability of on-time
delivery. In analytical studies, typically only one delivery performance dimension is analyzed (e.g., So
and Song, 1998; Li and Lee, 1994) since increasing the number of parameters often makes the analytical
models intractable. While these analytical studies attempt to validate their findings through numerical
simulations, many of their results (e.g., delivery speed leads to price premium and market share) are not
empirically confirmed.
Some studies combine the two dimensions to form a composite measure of delivery performance
(“order timeliness” in Vaidyanathan and Devaraj (2008), “delivery capability” in Fawcett et al. (1997)
and “order fulfillment service” in Davis-Sramek et al. (2008)) and demonstrate its positive impacts on
measures of firm performance (e.g., customer satisfaction). However, such an approach masks the
impacts of individual dimensions and may yield biased findings, given that delivery reliability and speed
may influence each other. Therefore, it is important to test both dimensions in an integrated model to
account for their heterogeneous influences.
The conceptual literature also suggests that the high-level delivery reliability dimension may be
further broken down into more detailed dimensions (Johnson and Davis, 1998; Pyke et al., 2001). The
typical on-time delivery rate only captures the percentage of deliveries made on or before the promised
date. But it does not measure the extent of early or late delivery. Long delays can be disruptive to buyers
because they may run out of inventory buffers. Long delays are especially troublesome for OEMs
because supply shortages can stop production. Tracking delays allows a firm to differentiate between
two suppliers with comparable on-time delivery rates but different magnitudes of delay. A small number
of studies have investigated a detailed dimension of delivery reliability: late delivery. For example, Rao
et al. (2011) find delivery delays in online retailing have adverse effects on order frequency, order size
and customer anxiety. We expand the related metrics to include both late delivery inaccuracy ("late
delivery") and early delivery inaccuracy ("early delivery"). While late delivery is not tolerated by buying

firms, early delivery has become less acceptable to buyers (Schneiderman, 1996). Yet the effect of early
delivery has not been examined in the literature despite the fact that buying firms increasingly demand
narrow delivery time windows (American Society for Quality, 2010). It is also unclear whether buyers
are only concerned with delays of large magnitude. We thus examine the impact of both large and small
delays. Our approach is in line with the literature on supplier performance measurement systems that
emphasizes the importance of tracking detailed supplier performance measures (Brown, 1996).
To summarize, although delivery performance includes multiple detailed dimensions, prior
studies usually analyze only one, and the measures are aggregated. When multiple dimensions are
present in the same study, they are either combined to form a composite score or tested separately
without considering their mutual influences, leading to potentially incomplete and biased findings. The
omitted delivery performance measures and inadequate control variables in prior studies also create
endogeneity concerns. Our detailed measures as well as instrumental variable regression help deal with
these concerns.
Another important observation from our literature review is that the existing literature focuses on
the direct impacts of delivery performance without considering contingency factors. The related studies
assume that the impact of delivery performance is uniform across customer segments. However, a
central tenet of operations strategy is to align operations capabilities (measured by operational
performance) with firm strategies and customer needs. As one of the fundamental measures of
operational performance (cost, quality, delivery, and flexibility), delivery performance should be aligned
with what the market wants. We attempt to fill this research void by examining the moderating effect of
customer segments on the impact of delivery performance.
2.2. OEM Customers and Trade Customers
We differentiate between two customer segments in this study: OEM customers and trade
customers. The two segments are standard classifications in the HVAC industry. OEM customers are
manufacturers who assemble their own products using components from suppliers. Trade customers are
defined as intermediary links between manufacturers and lower-tier customers (e.g., contractors or
consumers). Figure 1 describes the relationships among the focal manufacturer (Gamma), a competitor
(Beta) and the OEM and trade customers. While the two types of customers have been recognized in the
OM and the Marketing literature, to our knowledge no study has directly compared them. We contrast
their characteristics and delivery needs based on the literature and the interviews we conducted with
practitioners in the HVAC industry. Table 3 depicts these characteristics.
--Insert Figure 1 and Table 3 about here--

Literature suggests that OEMs produce a small number of similar products in large quantities
(Prahalad and Hamel, 1990). They create value for their customers mainly through value-added
assembly processes that transform materials into products. OEMs not only make products for national
brands, but also design and sell their own products. Modern OEMs focus on eliminating non-value-
added activities in the manufacturing system (Eroglu and Hofer, 2011). Storage of raw materials is one
of those non-value-added activities. In order to minimize on-hand inventories, OEMs usually order parts
and components with just enough advance notice to meet the delivery schedule for their own customer
orders. Coordinating various inputs from multiple suppliers is a complex task that depends on suppliers’
delivery performance. Short delivery lead times are preferred because long lead times force OEMs to
extend the time horizon of their manufacturing plans, which decreases predictability. Reliable delivery is
critical because delivery variability is disruptive to assembly processes. As one OEM customer we
interviewed commented: “We view it [reliable delivery] as a basic capability from our suppliers. We
don't expect them to be instantaneous, but we expect them to be here as promised."
Trade customers generally do not perform manufacturing activities. They create value for their
own customers by offering services not available from OEMs. While OEMs typically make large
numbers of similar products, trade customers cater to end users, who demand a wide selection, but
purchase only in small quantities. Trade customers (resellers) meet this need by purchasing items from
various vendors and sorting, accumulating, and allocating the items. Another value created by trade
customers is the immediate availability of products. They stock a large variety of finished goods and
therefore can often fill customer orders immediately. However, trade customers’ ability to create these
customer values relies heavily on their suppliers' delivery performance. Having to carry a large variety
implies that trade customers can hold only a small quantity of each item. They rely on suppliers’ speedy,
reliable delivery to maintain product availability and avoid shortages. This is especially important when
buyers can find the same items from competing distributors. A VP of Purchasing at an HVAC
distributor commented: “if a supplier cannot make quick and consistent delivery, we may just pay a few
percent more for a supplier who can do so. One example is we recently switched suppliers of A/C filters
due to slow delivery [of an existing supplier].”
In summary, OEM and trade customers create value for their own customers via different
processes. The importance of various delivery performance dimensions may differ between OEM and
trade customers.

3. Hypothesis Development
In this section, we first hypothesize how delivery performance dimensions may affect future
transactions in general (H1 through H3). We then develop hypotheses that differentiate between OEM
customers and trade customers (H4 and H5).
On-time delivery rate
On-time delivery rate is a critical dimension evaluated by customers (Kim, 1996; Lee and
Whang, 2001; Boyer and Hult, 2005). The customer satisfaction literature suggests that customers
perceive lower value when their orders are not delivered on time (Bolton, 1998), leading to reduced
purchase activities (Smith et al., 1999; McCollough et al., 2000; Harris et al., 2006). Conversely,
consistent on-time delivery results in higher perceived value and increased customer loyalty, leading to
increased willingness to order more and pay more (Kelley et al., 1993; Rao et al., 2011).
Firms with poor on-time delivery performance will gradually lose ground to their rivals
(Viswanadham, 2000). Excellent on-time delivery performance helps buying firms increase efficiency,
reduce supply uncertainty and provide better service to their own customers, whereas poor on-time
delivery from suppliers may lead to competitive disadvantages for buying firms (Deming, 1986; Davis-
Sramek et al., 2008; Sawhney and Piper, 2002). A survey conducted by Bain & Company suggests that
B2B customers on average are willing to pay 3.1% premium for reliable delivery, and will order more
from reliable sources (Mewborn et al., 2014). Thus, we expect that superior on-time delivery
performance from a supplier should motivate its customers to order more and pay a price premium.
H1a: On-time delivery rate will be positively associated with the quantity of future customer
transactions.
H1b: On-time delivery rate will be positively associated with the unit price of future customer
transactions.
Delivery date inaccuracy

Since early and late deliveries potentially impact customers to different extents, our discussion
below differentiates the effects of early and late delivery. Early studies of operations systems suggest
that effective control must account for delivery inaccuracy (Hill and Vollmann, 1986). On the one hand,
late delivery of materials can greatly affect buyers’ available inventories (Marlin, 1986). Large
disparities between planned delivery and actual delivery force buyers to hold more inventories than
necessary to sustain normal operations. For firms that attempt to achieve near-zero inventories, late
delivery can lead to product shortage or even supply chain disruption (Mula et al., 2006). On the other
hand, early deliveries are increasingly unwelcome. If materials arrive early, buyers have to prepare

warehouse space and insure those items that are not immediately needed. In other words, late delivery
contributes to product shortage costs and loss of goodwill, while early delivery contributes to inventory
holding costs (Guiffrida and Nagi, 2006). Therefore, buyers are unlikely to tolerate either late or early
delivery. Based on the above discussion, we propose the following:
H2a. Early delivery will be negatively associated with the quantity of future customer
transactions.
H2b. Late delivery will be negatively associated with the quantity of future customer
transactions.
H2c. Early delivery will be negatively associated with the unit price of future customer
transactions.
H2d. Late delivery will be negatively associated with the unit price of future customer
transactions.
Delivery speed
The literature has attested to the benefits of speedy delivery from various perspectives. For
example, inventory-related costs can be as high as 30% to 35% of the product value (Zipkin, 2000). A
higher delivery speed (a shorter supply lead time) allows buyers to carry fewer safety stocks to achieve
desired customer service levels, ultimately reducing inventory costs (Zipkin, 2000). In addition, faster
supplier delivery helps improve buyers' cash flow because cash is tied up in inventory for less time
(Handfield and Pannesi, 1992). Finally, when buyers encounter unexpected supply chain disruptions,
fast delivery from suppliers allows them to restore normal operations and meet their own customer
demands with minimal delays. Thus, we expect that speedy delivery helps suppliers to win more
customer orders.
Fast delivery may also lead to price premiums for suppliers. Prior literature has attempted to
quantify the value of manufacturing lead time (delivery speed) to customers using the notion of the
delay cost rate (Afeche, 2006; Van Mieghem, 2000). In many industries, customers may be classified as
lead-time sensitive or price sensitive (Blackburn et al., 1992; Smith et al., 2000). Given customers’
differing sensitivity to lead time, it is not uncommon for manufacturers to charge higher prices for
shorter delivery lead time (Zhao et al., 2012). In line with the literature, we hypothesize:
H3a. Delivery speed will be positively associated with the quantity of future customer
transactions.
H3b. Delivery speed will be positively associated with the unit price of future customer
transactions.

Customer Types
Consistent with the contingency theory (Lawrence and Lorsch, 1967), this study postulates that
the effects of delivery performance dimensions on transaction quality and unit price are contingent upon
customer types.
On-time delivery is important to both OEM and trade customers. When a supplier cannot deliver
on time, the resultant material shortage may force OEM manufacturers to delay or even stop their
assembly processes. The situation becomes worse when OEMs need to coordinate numerous materials
from multiple sources to ensure that the right items arrive at the right time. Manufacturers are unlikely to
tolerate unreliable delivery since it disrupts the processes that create value. Trade customers create value
by managing operating costs associated with transportation and storage of a high variety of items. It is
essential for trade customers to reduce inventory-related costs while achieving desirable customer
service levels.
Because on-time delivery is one of the most fundamental operational performance outcomes, the
literature suggests that it is essential for both OEMs and trade customers (Ward et al., 1998;
Viswanadham, 2000). Competition will weed out firms without a competitive on-time delivery rate; the
market has no room for them (Ward et al., 1998). If that is the case, there is no obvious reason to argue
that any customer segment will treat on-time delivery lightly. Therefore, we expect the effect of on-time
delivery to be indifferent between OEM and trade customers. We do not propose a formal hypothesis
because statistically such a hypothesis is not testable 1.
While we believe OEM and trade customers both expect a high on-time delivery rate, we argue
delivery inaccuracy can be more harmful to OEMs since OEMs tend to be more dependent on tight
supply delivery windows. OEM customers usually have to coordinate an array of manufacturing and
logistics processes in order to deliver finished products to their own customers. Hence, OEM customers
need to consider not only how fast they can receive materials but also how they can move these
deliveries into their manufacturing systems at the right pace. In a manufacturing system, the value of
aligning manufacturing processes often outweighs the sum of the values generated by individual
processes. Low operations variance (i.e., low delivery inaccuracy) is critical for such a system because it
makes effective alignment and control possible (Fredendall and Hill, 2000; Inman et al., 2011). Early
deliveries can mean extra costs to OEM customers since they have to allocate resources to store and
manage inventories. Compared with distributors (who excel at sorting items from different suppliers),
1
We thank an anonymous reviewer for suggesting this.

manufacturers tend to be less capable of handling early delivery of materials (Monczka et al., 2011).
Late delivery may lead to material shortages, potentially forcing a shut down. To reduce operations
variance caused by early or late delivery, OEM customers need to set high standards for their suppliers
to meet target delivery dates. Trade customers do not perform manufacturing activities and thus should
have fewer needs for suppliers to meet the target delivery date. Also, OEM customers tend to provide
better forecasts to their suppliers since OEMs purchase fewer varieties in larger quantities. This implies
that OEMs tend to expect smaller delivery inaccuracy since they provide relatively accurate information
to their suppliers. Thus, the effect of delivery inaccuracy on OEM customers is likely larger than that on
trade customers. Based on the above discussion, we propose the following:
H4a. Early delivery will have a stronger negative association with the quantity of future
customer transactions for OEM customers than for trade customers.
H4b. Late delivery will have a stronger negative association with the quantity of future customer
transactions for OEM customers than for trade customers.
H4c. Early delivery will have a stronger negative association with the unit price of future
H4d. Late delivery will have a stronger negative association with the unit price of future
customer transactions for OEM customers than for trade customers
We expect that delivery speed should be relatively more important for trade customers than for
OEM customers. First, because multiple distributors can offer the same products to customers, a
customer may switch to a competing distributor to purchase the same or very similar products. In
contrast, since the finished products sold by different OEMs tend to be somewhat differentiated,
customers are less likely to switch suppliers. The ease with which buyers can find identical or very
similar products from competing distributors suggests that trade customers have to rely more on supplier
delivery speed (short order fulfillment lead time) to enhance product availability and avoid potential loss
of sales.
Second, resource scarcity pushes trade customers to allocate their capital very carefully among
the different SKUs they carry. According to industry profit margin data compiled from sources
including Bloomberg, Morningstar, Capital IQ and COMPUSTAT, distributors’ average net profit
margin is 4.23% as opposed to the total market average of 7.84% (Damodaran, 2015). Compared to
OEM customers, trade customers tend to carry a higher variety of SKUs from many vendors to meet
customer demand. They have to leverage speedy delivery from their suppliers to put cash to better use
(e.g., replenishing fast sellers in peak seasons). For these reasons, trade customers are more dependent
on supplier delivery speed. Unsatisfactory delivery speed should motivate trade customers to reduce
transaction quantity, ask for lower prices, or even switch suppliers. Thus, we propose:

H5a. Delivery speed will have a smaller positive association with the quantity of future customer
transactions for OEM customers than for trade customers.
H5b. Delivery speed will have a smaller positive association with the unit price of future
4. Research Methods
4.1. Research Setting and Background
Our empirical analysis is grounded on a proprietary dataset from a supply chain of HVAC
control products consisting of a focal manufacturer (the supplier) and its customers. Admittedly, a single
supply chain research design somewhat limits the generalizability of our findings. However, our data
includes orders placed by approximately 900 customers of different types, which should be
representative of the ordering behavior of industrial customers who demand products of similar nature in
other assembly manufacturing industries. An Institute for Supply Management (ISM) manufacturing
report suggested that companies in multiple industries are facing similar challenges in delivery
operations (ISM, 2013). Thus, our findings are likely to provide managerial insights beyond this specific
industry.
The focal manufacturer (henceforth Gamma) in our sample is a division of a diversified
technology and manufacturing company located in the United States. Gamma manufactures sensing and
control products ranging from small scanning and mobile devices to control systems for homes, business
buildings, and industrial facilities. The HVAC industry generated $43 billion in revenue in 2012
(IBISWorld, 2014). While Gamma is a leader in the HVAC control industry, there are seven major
vendors and none of them dominate the market. The market share differences between major
competitors are less than 10%. Gamma faces intense competition as products become more and more
standardized and the entry barriers are not prohibitive (IBISWorld, 2014). Gamma aims to become a
leader in its chosen markets and believes one way to achieve this goal is to provide responsive, timely
deliveries that help its customers improve their competitiveness.
Our study focuses on selected HVAC control products, specifically various electronics; motors;
electric, hydraulic, linear and pneumatic actuators; and damper motors. Those products are sold mainly
to distributors and OEMs. This customer composition is typical in the HVAC control industry and a
range of other assembly manufacturing industries (Lee, 1996). A common characteristic of the products
we study is that they are not directly visible to end users since they all reside inside an HVAC system.
Therefore, while end users will recognize the HVAC system brand (e.g., Carrier, Lennox), they tend not
to pay much attention to these control components. In addition, products from other suppliers tend to

function quite similarly and there are several competitors whose products are viewed as comparable to
Gamma’s in terms of quality and reputation. For the above reasons, the products we investigate
generally are not highly differentiated.
The dynamics of the product lines we examine are to some extent similar to products undergoing
commoditization in some other industries, such as ball bearings, industrial paint and low- to medium-
grade medical scanners (Kashani, 2006). In these industries, “there is still plenty of opportunity for
differentiation around availability, delivery, shipment quantities, payment terms, and all the other
services that accompany the core product.” (Quelch, 2007). This view is consistent with that of the
managers at Gamma, who believe if Gamma can achieve better delivery performance than competitors,
it may be able to increase its business without discounting its products.
As a leader in the aforementioned product categories, Gamma is a relatively powerful supplier
due to its size and reputation for quality. Its buyers are generally smaller than Gamma in terms of sales
volume. While there is no industry-wide benchmark data on delivery metrics related to the product lines
we examine, anecdotal evidence and interviews with industry practitioners suggest that Gamma’s
delivery performance is comparable to its main competitors.
The delivery performance metrics are reviewed by buyers periodically, typically on a monthly
and quarterly basis, or as needed. For more sophisticated buyers (e.g., large OEMs), supplier
performance metrics are dynamically updated based on each transaction. For instance, an OEM we
interviewed has a supplier scorecard system that automatically pulls supplier delivery records and
computes delivery performance metrics. The delivery performance metrics will then be used for a
variety of purposes such as making sourcing decisions, identifying supplier development needs, and
allocating business among suppliers. This fact implies that cumulative supplier delivery performance
will influence future orders and therefore is consistent with our approach of using running averages of
delivery performance as determinants of future customer order behavior. The trade customer we
interviewed, while not having as sophisticated a supplier scorecard system, also tracks supplier delivery
and reviews the records on a monthly basis. Both customers indicated that their peers have comparable
systems for tracking supplier delivery performance.
Many buyers do not have contracts with suppliers and their purchases are similar to spot market
purchases. For those who have contracts with Gamma (usually large buyers), the contract length can
vary considerably, typically from a quarter to a year. While some contracts have a fixed price clause,
other contracts allow for price adjustments during the contract period. Factors such as materials and
labor cost fluctuation, demand spikes due to unexpected reasons (e.g., unusually cold or hot weather),

special promotion programs, and rebates also affect prices. Thus, price changes can occur even under
contracts. While supplier-selection decisions are commonly made at the headquarters level, individual
plants within the buying company are often authorized to place their own orders. It is not uncommon for
the corporation to have contracts with more than one supplier in certain categories. Thus, a plant may
have the option to place orders with certain contracted suppliers.
As in many other assembly industries, the HVAC control industry faces increasing pressure to
reduce inventory costs while maintaining satisfactory delivery performance (Davis, 1993). Providing
superior delivery is a challenge for Gamma given its diverse customer base and broad product lines.
While managers at Gamma realize the importance of delivery capabilities, their actual delivery
performance does not meet their expectations. During our study period, the overall on-time delivery rate
was in the range of 60% to 70%.
4.2. Data and Variables

The data used for our analysis spanned the years from 2004 to 2006. Gamma provided detailed
information regarding item-level (SKU-level) transactions and the associated fulfillment records to the
research team. Each transaction represents a single purchase of an item or stock keeping unit (SKU)
(Yao et al., 2009). A transaction can be a customer order by itself if the order involves only one item or
a part of a customer order if the order involves multiple items. In our data set, approximately 75% of
customer orders are single-transaction orders and the rest are multi-transaction orders.
Our full data set contains over 40,000 customer transactions involving 207 items. About 8,000
transactions are between Gamma and its domestic and international sales branches. Those 8,000
transactions are excluded. The remaining transactions are predominantly placed by OEM and trade
customers, accounting for over 95% of external customer transactions, and involving 85 OEM
customers and 253 trade customers. Because our analysis involves computing the running average of
past delivery performance, we dropped customers with fewer than three transactions during the three
year period of our study. Even after excluding certain customer types and those very small customers,
the effective sample size is still above 30,000. Because all data are from a single manufacturer’s supply
chain, unobserved cross-manufacturer heterogeneity such as differences in managerial capabilities and
production function, as well as supplier performance metrics are controlled for (Terwiesch et al., 2005;
Wan et al., 2012).
Our conceptualization and empirical analyses are built on the assumption that customers will
evaluate a supplier’s delivery performance using all the information available to them. As we discussed

earlier, many customers dynamically and continuously update supplier delivery performance metrics. So
for each transaction, we empirically derive Gamma's running delivery performance (cumulative
performance) up until a new transaction is initiated. Table A1 in the online appendix reports the
structure of the data. It differs from a panel data structure since panel data is constructed by period so
that past events may affect subsequent outcomes. In such cases, transaction characteristics such as
quantity and unit price are aggregated within each period, leading to a loss of transaction-level
information. In contrast, our data structure allows us to relate past delivery performance to transaction-
level characteristics.
Our analysis involves two dependent variables: transaction quantity and unit price. Transaction
quantity is the number of units purchased in a transaction. Because transaction quantity is right skewed,
we performed a log transformation to correct for skewness. The unit price is the purchase price per unit
in dollars. Since our data spans three years, the unit price is adjusted for inflation using the Producer
Price Index (PPI) published by the Bureau of Labor Statistics.
With respect to the predictors, we include four delivery performance measures: on-time delivery
rate, early delivery inaccuracy, late delivery inaccuracy, and delivery speed. Each delivery performance
variable is computed as a running average by customer. On-time delivery rate is a common metric used
to measure delivery reliability (Handfield and Pannesi, 2002; Viswanadham, 2000; Ward et al., 1998).
To operationalize on-time delivery rate (AvgOnTimeRate), we compute the running average of on-time
delivery rate of all transactions before the current transaction. For example, for a given customer, if 50
out of 100 past transactions were delivered on or before the promised delivery date, the average on-time
delivery rate will be 50% (0.50).
Delivery inaccuracy is captured by the running average of the normalized absolute deviation
from the promised delivery date grouped by customer. The early delivery inaccuracy (EarlyDelInaccy)
and late delivery inaccuracy (LateDelInaccy) therefore gauge the extent of early and late delivery
relative to the time it takes to fulfill the purchase transaction. The idea is similar to a relative deviation
measure of forecasting errors. To our knowledge, no study has empirically evaluated the impact of early
delivery inaccuracy. Late delivery inaccuracy is akin to tardiness, defined in Vachon and Klassen
(2002). We also use the running average of non-normalized absolute deviation to check robustness.
Literature has seldom examined the delivery speed metric empirically using transaction data.
Some conceptual literature alludes to cycle time as the speed of delivery. In an empirical study, Yao et
al. (2009) use fulfillment cycle time as the delivery speed measure. However, their study context is
federal procurement, where suppliers are largely distributors or retailers. In this study, the supplier is an

assembly manufacturer. In assembly manufacturing, it is common that manufacturers hold component
inventories and assemble based on customer orders. Thus, it is reasonable to factor in the transaction
quantity when considering delivery speed since larger quantities tend to require longer manufacturing
lead times (Handfield and Pannesi, 2002). To compute delivery speed, we first take the fulfillment cycle
time for each transaction, defined as the time between the request and delivery dates (Yao et al., 2009).
Then, we regress fulfillment cycle time on transaction quantity. Finally, we obtain the regression
residuals. This measure therefore is the fulfillment cycle time with the effect of transaction quantity
partialled out.
We include a list of control variables in our analysis. First, since transaction quantity and unit
price are affected by the overall market demand, we include the number of housing units started by
month (UnitStarted) to control for the effect of market demand. The variable was constructed based on
data published by the U.S. Census Bureau. Second, we include the number of product units delivered
across all customers each month (MonthQty) to reflect Gamma’s overall delivery quantity (Gamma’s
growth) by month. This variable also allows us to control for the potential effect of throughput delay,
which suggests that throughput time increases with demand because higher demand will add complexity
to the system and generate more opportunities for error. Third, a customer may increase transaction
quantity but reduce transaction frequency. Thus we include the number of transactions delivered to each
customer by month (CustMonthlyTXNCount) and the transaction count across all customers by month
(MonthTXNCount) in our model. Fourth, we include customer ID dummies (CustomerID), which control
for the heterogeneity among Gamma’s customers. Fifth, we include product ID dummies (ProductID) to
control for potential differences across SKUs. Finally, we include a variable that captures the percentage
of units sold to trade customers (i.e., product mix; PctTradeQty). Our variable product mix is
conceptually consistent with Mayer et al. (2014), which defines product mix as the relative distribution
across different product types. Table 4 presents the variables used in our analysis. Tables 5 and 6 present
descriptive statistics and the correlation matrix respectively. Some variables are log transformed to
correct for skewness (denoted by superscript “a” in Table 6).
--Insert Tables 4, 5 and 6 about here--
4.3. Estimation Methods

We specify a transaction quantity equation and a unit price equation as below:

𝑐 𝑝
𝑇𝑇𝑇𝑇𝑇𝑇 = 𝛽0 + 𝛽1𝑐 � 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑐 + 𝛽2𝑝 � 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑝 + 𝛽3 𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈 + 𝛽4 𝑀𝑀𝑀𝑀ℎ𝑄𝑄𝑄

1 1
+ 𝛽5 𝑀𝑀𝑀𝑀ℎ𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 + 𝛽6 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶ℎ𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 + 𝛽7 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 + 𝛽8 𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈

+ 𝛽9 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 + 𝛽10 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 + 𝛽11 𝐿𝐿𝑡𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 + 𝛽12 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷
+ 𝛽13 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 × 𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 + 𝛽14 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 × 𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂
+ 𝛽15 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 × 𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂
𝑐 𝑝
𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈 = 𝛽0 + 𝛽1𝑐 � 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑐 + 𝛽2𝑝 � 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑝 + 𝛽3 𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈 + 𝛽4 𝑀𝑀𝑀𝑀ℎ𝑄𝑄𝑄

1 1
+ 𝛽5 𝑀𝑀𝑀𝑀ℎ𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 + 𝛽6 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶ℎ𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 + 𝛽7 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 + 𝛽8 𝑇𝑇𝑇𝑇𝑇𝑇

+ 𝛽9 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 + 𝛽10 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 + 𝛽11 𝐿𝐿𝐿𝐿𝐿𝑒𝑙𝑙𝑙𝑙𝑙𝑙𝑙 + 𝛽12 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷
+ 𝛽13 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 × 𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 + 𝛽14 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 × 𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂
+ 𝛽15 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 × 𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂
Because transaction quantity and unit price may influence each other, we include unit price in the
transaction quantity equation and transaction quantity in the unit price equation as a predictor. Since
transaction quantity and unit price may be subject to managerial decisions, they should not be assumed a
priori to be exogenous. Including either of these two variables as a predictor can lead to correlation
between these variables and the error term (i.e., endogeneity), leading to biased parameter estimates if
ordinary least squares (OLS) regression is used. Thus, we use instrumental variable regression to deal
with the endogeneity issue when necessary.
Several statistical tests are employed to ensure the suitability of instrumental variable regression
and the validity of the instruments. First, Durbin–Wu–Hausman (Hausman for short) tests can assess
whether the suspected endogenous variables are truly endogenous. Second, overidentification tests (such
as the Sargan test) can check if the instruments are uncorrelated with the error term. Overidentification
tests can only be performed when there are more instruments than the number of endogenous predictors.
Third, researchers should check how well the chosen instruments predict the endogenous variable for
which they are instrumented.
We use the assembly cost of the purchased item and the average price for past transactions for a
customer as the instruments for the unit price (UnitPrice) variable in the transaction quantity equation.
Both instruments are conceptually related to the unit price of the transaction. The assembly cost is
highly correlated with the unit price but is a fixed engineering parameter not subject to managerial
decisions. Average unit price of the past transactions reflects the overall price level with a customer but
should be exogenous to the decision to price a specific order. In the unit price equation, we use the

average past transaction quantity for a particular customer and promised delivery lead time as the
instruments for the current transaction quantity (TXNQty) for a given customer. Again, average
transaction quantity should have a high correlation with the current transaction quantity but it represents
summary information of past events and therefore should have a small influence on the current
transaction. Promised delivery lead time was established with the consideration of transaction quantity.
It is the manufacturer’s promised delivery date when customers place orders and should be exogenous to
the actual delivery.
We perform the Hausman test, overidentification (Sargan) test and the test for the strength of the
instruments. Our tests suggest that the variable UnitPrice in the transaction quantity equation is
endogenous, whereas the variable TXNQty in the unit price equation is exogenous instead of endogenous
as we suspected. Based on the test results (online appendix, Table A2), we choose to use only
instrumental variables for UnitPrice in the transaction quantity equation.
4.4. Results
We report the regression results in Table 7. A summary of the hypothesis test results can be
found in the online appendix (Table A3). The significant interactions are plotted in Figure 2.
-- Insert Tables 7 and Figure 2 about here--
H1a and H1b posit that on-time delivery rate will be positively associated with transaction
quantity and unit price of the future transactions. The results show that on-time delivery rate is not
significantly associated with transaction quantity but strongly positively associated with unit price,
providing strong support for only H1b.
H2a through H2d suggest that early and late delivery will be negatively associated with transaction
quantity and unit price. The results demonstrate that only late delivery is significantly negatively
associated with order quantity. Thus we find support only for H2b.
H3a and H3b postulate that delivery speed will be positively associated with both transaction
quantity and unit price. The regression coefficient of delivery speed is insignificant in model I of the
transaction quantity equation. Thus there is no support for H3a. However, we observe a significant
negative association between lower delivery speed (i.e., longer cycle time) and unit price, indicating that
faster delivery is associated with higher unit price. Thus, H3b is supported.
H4a through H4d collectively suggest that early and late delivery will have a stronger negative
effect on transaction quantity and unit price for OEM customers. Except for one (H4a,

EarlyDelInaccy×OEMCustomer in the order quantity equation), all regression coefficients of the
interaction terms are negative and significant, indicating support for H4b, H4c and H4d.
H5a and H5b posit that delivery speed will have a smaller positive effect on transaction quantity
and unit price for OEM customers. We find support for H5a and H5b since the signs of the coefficients of
the interaction terms are positive and statistically significant in both equations. Note that delivery speed
is measured by cycle time. Thus, a negative regression coefficient suggests that higher delivery speed is
positively associated with the dependent variables. This result is consistent with our prediction that trade
customers should be more sensitive to fast delivery.
With respect to control variables, in general there are no obvious patterns in the customer ID and
product ID dummies. There are no counterintuitive findings among other control variables.
4.5. Post hoc Analysis

We perform a number of analyses to check the robustness of our results. First, we run the same
regression models with the first three-month and the first six-month observations trimmed since the
cumulative delivery performance will take some time to arrive at a meaningful value. The results are
consistent. Second, we construct monthly panels (aggregated by customer) to examine whether the prior
month’s delivery performance would affect customers’ transaction quantity and price in the next month.
We take different lags (1, 3, 6, 9, and 12 months) to gauge how soon delivery performance might impact
transaction quantity and unit price. Overall, the monthly panel regression yields weaker results than our
original analysis, perhaps due to the loss of information through data aggregation. Alternatively, we
perform analyses with time lags at the transaction level. In other words, we check whether delivery
performance will affect transaction-level outcome with time lag. With our three-year data, we rerun the
analyses with 1, 3, 6, 9, and 12 month lag. We do not go more than one year since we only have three
years’ data and contract length (if a contract was in place) typically varies from a quarter to a year. The
effects on transaction quantity are qualitatively consistent.
Third, we estimate the transaction quantity equation and unit price equation with subsamples of
OEM customers and trade customers (an alternative way of testing moderation effects). We observe
mostly consistent results between the subgroups analysis and the regression analysis using the full
sample. Fourth, given that we aggregate past delivery performance (i.e., running delivery performance)
based on all of the past transactions by customer, we also aggregate past delivery performance in each
year during our study period and examine whether the running delivery performance within each year
impacts subsequent customer transactions in that year. The results are mostly consistent, though

somewhat weaker. Fifth, since the samples include single-transaction and multi-transaction orders, we
estimate our models by splitting samples into orders with single transactions and orders with multiple
transactions. The results are again consistent with those from the full sample.
Sixth, we examine alternative delivery performance measures including normalized (i.e., divided
by transaction quantity) and non-normalized average fulfillment cycle time and non-normalized mean
absolute deviation. The normalized delivery speed measure produces qualitatively consistent results.
Using the non-normalized variables results in some insignificant parameters that are significant when
normalized variables are used. These results support our use of normalized delivery measures, which
produce more theoretically consistent results. Seventh, we check the potential interaction between
products and customers. Due to the large number of interaction effects, we randomly sample 200
customer-product interactions in each regression model. We find that only about 20% the interaction
effects are significant and do not change our conclusion. Finally, in addition to the two-stage least
squares estimator (2sls), we also use generalized method of moments (gmm) estimators of the
instrumental-variables regression in Stata 12 to analyze our data. The results are almost identical to
those generated by the instrumental-variables regression with the 2sls estimator. We do not report the
results of robustness analyses for brevity's sake but these results are available upon request.
We also perform additional analyses based on the new findings of our main analysis. First,
although some argue that early delivery is harmful to buyers’ operational performance, our analysis
provides the first empirical evidence that the effect of early delivery is negligible in certain industry
contexts. Since on-time delivery rate and delivery inaccuracy conceptually have some overlap, we test
the effects of on-time delivery rate (H1) and delivery inaccuracy (H2) separately. We find that early
delivery becomes significant in the unit price equation in the absence of on-time delivery rate. This
finding may suggest that on-time delivery rate and early delivery measures carry some similar
information—when both are in the same model, on-time delivery rate overrides early delivery
inaccuracy since buyers track and respond to it more.
In addition, late delivery is the only factor that influences future transaction quantity. To further
understand the effects of delivery delays, we differentiate between large delays (more than a week) and
small delays (less than three days) based on inputs from practitioners in the HVAC industry. We find
only large delays are negatively associated with transaction quantity. This finding complements the early
studies that reveal the negative impact of delivery delays but do not differentiate delay magnitudes. Our
post hoc analysis further indicates that only large delays affect customer purchase behavior.

Finally, while variability is widely viewed as detrimental to operations, our literature review
suggests delivery lead time variability is not a commonly-used delivery metric. Thus, in a post hoc
analysis, we attempt to relate delivery lead time variability to customer transaction quantity and unit
price. We construct a variable that measures the cumulative (rolling) variability (measured as coefficient
of variation) of transaction fulfillment cycle time by customer. We then perform regression analyses
with this variable as a predictor of transaction quantity and unit price. The results indicate cycle time
variability is related to lower transaction quantity (β=-0.310, p<0.01) but not unit price. For OEM
customers, however, cycle time variability is related to lower unit price, as indicated by the significant
interaction effect between cycle time variability and OEM customer (β=-0.077, p<0.05). These findings
provide preliminary evidence that a high variability in fulfillment cycle time negatively impacts
customer values, especially for OEM customers.
5. Discussion
Many modern assembly manufacturers such as Gamma rely on fast and reliable delivery to
compete. Yet, while prior studies attest to the positive impacts of superior delivery on firm performance,
these studies tend to examine only a single dimension of delivery performance, or test multiple
dimensions separately, or analyze composite measures of delivery performance, potentially creating an
omitted variable problem. In addition, some important practical and conceptual delivery performance
measures have not been examined empirically and thus their impacts are unknown. Our study presents
the first empirical evidence suggesting that different delivery performance dimensions can influence
purchase behavior of OEM and trade customers differently. Such a nuanced understanding of individual
dimensions of delivery performance provides insight on the applicability as well as the limitations of
operations capability perspectives in a B2B context.
5.1. Theoretical Insights

Our findings provide evidence that suppliers' delivery performance can impact their industrial
customers’ future purchase behavior, thereby reinforcing the seldom-empirically tested idea that
superior delivery performance can help a firm compete. Our findings provide more detailed insights than
those suggested by the conceptual literature: we observe that no delivery performance dimensions affect
both customer transaction quantity and unit price. While Johnson and Davis (1993) argue that using the
same metrics throughout the supply chain can enhance delivery performance, our work suggests that
manufacturers may need to weight their performance metrics differently for each customer segment.

Further, the analytical literature proposes that delivery speed is an important determinant of unit price
and market share (Li and Lee, 1994; So and Song, 1998; Zhao et al., 2012). However, our empirical
findings suggest that delivery speed affects only unit price. Our study also addresses the potential
endogeneity concerns caused by omitting one or more of the mutually influential delivery metrics, such
as delivery reliability and speed (Hopp and Sturgis, 2000). We find that increasing delivery speed is
related to higher unit prices, after accounting for the effects of delivery reliability.
Impacts of delivery performance on transaction quantity

Transaction quantity is affected only by late delivery. Our robustness analysis further suggests
that large delays, in particular, affect future sales. These results suggest that transaction quantity
decisions are affected by the relative magnitude of delays. Related empirical literature in the B2B setting
captures average delays but does not differentiate between large and small delays (e.g., Vachon and
Klassen 2002). Our findings suggest customers tend to focus on large delays while discounting small
delays. For OEM customers, the results perhaps suggest that they either carry a few days of inventory on
hand or they have an ordering policy that requests delivery a few days earlier than expected. For trade
customers, it is possible that they factor in lead time variance when setting reorder points. In both cases,
manufacturers will be better off incurring multiple minor delays than even a few major delays. The
result is consistent with the literature suggesting that large delays tend to affect the buyer’s fulfillment of
its customer orders (Croxton, 2003). The findings further suggest that a manufacture may develop a
competitive advantage over competitors if it can reduce delivery delays to a very small scale (less than
three days in our context). Under such circumstances, its customers can significantly reduce operation
costs through inventory reduction. Since the dependent variable (transaction quantity) and the
independent variable (delivery delay) are both log transformed, the coefficient of -0.075 can be
interpreted as follows: for each percent increase in cumulative late delivery inaccuracy, transaction
quantity will be decreased by 0.075%, holding other variables constant.
Our discussion above also explains why early delivery does not appear to negatively affect
transaction quantity. While the literature suggests that early delivery is unwelcome, our results suggest
that many firms may not view early delivery as harmful. Although Li and Lee’s (1994) analytical results
show that higher delivery speed leads to a larger order quantity, our empirical findings demonstrate that
when delivery delay is accounted for, the effect of delivery speed on transaction quantity is insignificant.

Impacts of delivery performance on unit price
Unit price is found to be affected by on-time delivery rate and delivery speed, but not by delivery
inaccuracy (late or early delivery). Corbett and Claridge (2002) include only delivery reliability
(operationalized via on-time delivery rate) in their study because they believe delivery reliability is more
important than delivery speed (see p. 115). However, our results demonstrate that delivery speed has a
strong impact on unit price even in the presence of delivery reliability. This finding implies that buyers
may demand lower prices from suppliers that provide worse delivery service. This behavior has been
observed by researchers in contexts where incentives are designed to reward purchasing managers based
on purchase prices (Kulp et al., 2004). The result also empirically confirms the analytical insights that
firms can charge higher prices for shorter delivery lead times (Li and Lee, 1994; So and Song, 1998;
Zhao et al., 2012).
It is important to note that we partial out the effect of transaction quantity in our delivery speed
measure. In our case, we have a supply chain of assembly products that may be assembled after orders
are received. Manufacturers often respond to smaller transactions faster because of the shorter
manufacturing lead time. Thus, when measured by only the average cycle time, delivery speed may be
interpreted as a proxy for transaction quantity. By taking into account the transaction quantity, our
analysis eliminates the potential noise. In our post hoc analysis, we also use average cycle time divided
by transaction quantity as an alternative measure of delivery speed. The results remain qualitatively
consistent. We acknowledge that the issue may be less important in a pure make-to-stock environment.
Still, researchers and practitioners should consider adjusting delivery performance measures based on
specific circumstances under investigation.
On-time delivery rate is associated with a higher price but not a larger transaction quantity. Prior
literature indicates firm-level impacts of reliable delivery on financial performance (e.g., Corbett and
Claridge 2002; Rosenweig et al., 2003). However, at the firm level there are many confounding factors
that may not be adequately accounted for, as indicated by the relatively small R-squares in these studies
(e.g., R-square=8% in Rosenweig et al., 2003). Using the transaction-level data and sufficient controls,
we provide further evidence that reliable delivery contributes to profitability by allowing sellers to
charge premium prices. Our estimation yields an R-square of 94.1%, suggesting little omitted-variable
concern. The implication is that managers who pay close attention to improving delivery performance
will realize higher profits for their firms.

Differences between OEM and trade customers
With respect to transaction quantity, the results suggest that OEM customers are more inclined to
penalize suppliers for large delivery delays but they seem to be more lenient toward lower delivery
speed, perhaps because of the ordering policy we discussed above. The literature suggests that delivery
reliability and speed are both critical manufacturing performance metrics (Handfield and Pannesi, 1992;
Vachon and Klassen, 2002). Our findings suggest that their criticality is dependent on customer
segment. Furthermore, prior studies suggest that ensuring even production flow is critical for
manufacturers to improve productivity (Schmenner and Swink, 1998). Our findings corroborate this
perspective. Derived from queuing theory, the law of variability suggests that the greater the variability,
the less productive the manufacturing process. Delivery delay reflects the extent to which the delivery
deviates from the target (a form of variability). According to this law, OEM customers can improve
productivity if their suppliers can reduce late delivery inaccuracy. This explains why OEM customers
are more sensitive to late delivery than trade customers, who generally do not have manufacturing
processes. These results collectively imply that OEM customers primarily evaluate suppliers’ ability to
meet the target delivery date when allocating order quantities among suppliers. These findings are
consistent with the theoretical argument that small operations variance (deviation) makes effective
manufacturing control possible and therefore is highly valued by manufacturers (Inman et al., 2011). In
contrast, and as we predict, trade customers appear to react to delivery speed more strongly than OEM
customers. This finding is in line with the way trade customers create value, as discussed in section 2.2.
Availability of a wide variety of products and small minimum order quantity requirements tend to be
their core value propositions. Speedy delivery enables trade customers to create these values for their
own customers. The negative association between delivery speed and transaction quantity for OEM
orders (substitute OEM dummy with “1” in model II of the transaction quantity equations) perhaps
suggests that, compared with trade customer orders, Gamma is less likely to fill OEM customer orders
from inventory (i.e., Gamma may start assemble products after receiving OEM customer orders). Thus,
for OEM customers, a higher speed perhaps implies a smaller order, which takes less time to fulfill.
The moderating effects of customer types on unit price are as predicted: OEM customers tend to
care more about accurate delivery and less about fast delivery. Notably, the impact of delivery
performance on unit price appears to be consistently weaker for OEM customers than for trade
customers (i.e., the interaction effects all have an opposite sign to the main effects). One possible
explanation is that OEM customers tend to develop long-term relationships and transact repeatedly with
their suppliers, and therefore are more likely to have contracts in place, resulting in less frequent price

changes even when supplier delivery performance is continuously improved. Another possible
explanation is that OEMs on average are larger than trade customers and have relatively more
negotiation power. Such power allows them to weaken (but not completely eliminate) the supplier’s
intent to charge premium prices based on improved delivery performance.
Based on our finding that OEMs care more about delivery inaccuracy, manufacturers can
strategically focus on enhancing this delivery dimension, especially when OEMs account for a large
portion of total sale volumes, which is typical in some industries. In our study, the number of units sold
to OEMs (captured by product mix in our model) is about six times that of trade customers. However,
we caution that manufacturers should not downplay the importance of trade customers, since profit
margins tend to be considerably higher with trade customers, as is the case with Gamma.
Collectively, our findings suggest that transaction quantity and unit price are affected by
different sets of delivery performance dimensions. While the literature on time-based competition
advocates improving delivery performance as a strategic response to competition, our results suggest
that firms should be selective in improving delivery performance dimensions. Barman and Laforge’s
(1998) numerical simulation suggests that priority rules that are effective for delivery speed
improvements are generally not effective for improving delivery reliability. Consistent with their
insights, our findings suggest that attempting to achieve high delivery performance along all dimensions
may not yield optimal returns on investments. More importantly, our findings suggest that OEM and
trade customers weight delivery performance dimensions differently. While the literature suggests
aligning operational performance with strategy and environments at the aggregate level (e.g., Peng et al.,
2011; Anand and Ward, 2004), our findings take an additional step to suggest that various dimensions of
delivery performance should align with specific customer segment requirements.
5.2. Managerial Implications

A study by McKinsey (2010) suggested that fewer than 30% of firms today collect detailed data
on their operations and supply chains, and far fewer make adequate use of such data to support their
decision-making. It can be inferred that most firms have limited knowledge about which delivery
performance dimensions they should improve to achieve specific goals in selected customer segments.
Our study offers several managerial approaches. First and foremost, the results suggest that
decision makers should not treat delivery performance as a single measure. Different delivery
performance dimensions may affect customer behavior differently: some affect only transaction
quantity, others affect only unit price; some are valued only by trade customers, and a few are valued

solely by OEM customers. Given the resource constraints many firms face today, they have to make
focused efforts to improve the delivery performance dimensions that contribute most to future customer
purchase volume or price. In this regard, our results provide operations managers with some empirical
evidence to help them identify the delivery performance dimensions most critical to their firms based on
customer profiles.
Second, operations managers can draw upon our findings to improve delivery performance
dimensions that not only satisfy customers but also help achieve organizational goals. For example, if
the goal is to increase unit price, managers should prioritize increasing delivery speed and on-time
delivery rate, as these two performance dimensions are associated with a higher unit price. Since our
results suggest that the effects of delivery performance on unit price are stronger for trade customers,
managers may prioritize deliveries for trade customers if they mainly intend to increase product unit
prices.
Third, our results suggest that OEM customers and trade customers have divergent requirements
for their suppliers' delivery performance. Attempts to improve delivery performance with unfocused
investments likely will have smaller-than-expected effects on customer purchase behavior because the
improved dimension may not be what customers value most. From the buyer’s perspective, our results
imply it is important to track detailed performance metrics by SKUs, manufacturing sites, etc. This
insight resonates with the literature on supplier performance measurement systems that emphasizes the
importance of tracking detailed supplier performance metrics (Brown, 1996).
5.3. Limitations and Future Research Directions

Limitations
Our study is subject to several limitations, each offering opportunities for future research. First,
our study uses data from a single firm’s supply chain. While this research design eliminates the variance
of inter-firm factors that may intervene with the theoretical relationships we examine, the single-firm
research design limits the statistical generalizability (McGrath, 1982) of our findings. Accordingly,
researchers must be cautious in interpreting our findings and avoid making universal assertions based on
our results. Future studies should thus try to obtain archival data from multiple firms and retest our
hypotheses. Second, we collected data from a real world manufacturer’s ERP system. Therefore, rather
than designing our own measures of the variables of interest, we use proxies from the available data.
Nevertheless, neither survey data nor real world transaction data are perfect and the findings based on
our unique data enrich the related empirical literature, which is based largely on survey data. Third,

given that only three years’ data are available, we cannot effectively assess when the memory of a
negative supplier-customer interaction ceases to impact future transactions. We believe this is an
interesting avenue for future research.
Future Research
We also suggest four future research directions based on our findings. First, early delivery has
trivial effects on unit price and transaction quantity. However, is this finding industry-dependent? We
suspect that early delivery can negatively affect customer orders in some industries. For example, food
retailers may not have enough cooling equipment to prevent early deliveries from spoiling. Therefore,
future study can perform similar analyses in different industries to gain insight. Second, while we
include both delivery reliability and speed in our estimation, we did not formally test the trade-off
between the two as suggested by the literature. Firms can promise longer delivery lead times to achieve
a higher on-time delivery rate, suggesting a potential tradeoff between speed and reliability. However,
some firms exhibit both high speed and reliability. Does the tradeoff between delivery speed and
reliability exist and if so, at what levels and under what conditions? These are practically and
theoretically relevant questions. Third, late delivery is the only performance dimension found to affect
transaction quantity. While our analysis partials out the effect of transaction size, the results may vary
under build-to-order vis-à-vis build-to-stock strategies. Future studies should investigate how different
manufacturing strategies affect delivery performance dimensions and their subsequent impacts on
customer orders. Finally, delivery speed is found to affect unit price but not transaction quantity in our
context. While this finding is in line with the literature (Morash et al., 1996), the effects of delivery
speed on order quantity in other settings merits further investigation.
Acknowledgement: We thank the department editor, Enno Siemsen, the senior editor, and two
anonymous reviewers, who have helped tremendously in improving this manuscript.
We thank Charles Schumacher, Steve Fair and John Pingel for providing information about the industry
context.
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Figure 1: Relationships among the focal manufacturer, its competitor (Beta) and the customers
Figure 2: The plots of interaction effects

The effect of delivery speed on transaction quantity The effect of late delivery on transaction quantity
transaction quantity
transaction quantity
delivery lead time

Late delivery
OEM TRADE OEM TRADE
Panel 1. Effects on transaction quantity

The effect of delivery speed on unit price The effect of early delivery on unit price The effect of late delivery on unit price
unit price
unit price
unit price
late delivery
early delivery
delivery lead time
OEM TRADE
OEM TRADE
OEM TRADE
Panel 2. Effects on unit price

The value of the variable on the X axes increases from the bottom to the top. The value of the variable on the Y axes increases from the left to the right.
Table 1: Definitions of Delivery Performance Dimensions

Term Definition
1. On-time delivery rate The percentage of transactions a supplier can deliver on or before the promised delivery date, usually
measured by on-time delivery rate.
2. Early delivery inaccuracy For the deliveries made before the promised delivery date, the average number of days the actual delivery
dates are before the promised delivery dates
3. Late delivery inaccuracy For the deliveries made after the promised delivery date, the average number of days the actual delivery
dates are after the promised delivery dates
4. Delivery speed The average number of days it takes a supplier to deliver the products ordered by customers, usually
measured by average fulfillment lead time.

Table 2: Literature about Delivery Performance Metrics
Study Delivery metrics Context Data Findings
Impact of delivery performance
Empirical
Fawcett et al. Delivery capability (a second order B2B Survey data at the firm Information availability and planning sophistication have a significant
1997 conceptual factor with two first level, n=131. positive impact on delivery capability. Delivery capability, in turn, is found
order factors: manufacturing to have a strong positive influence on firm performance (a composite
delivery and logistics delivery) measure including ROA, customer service level, growth in market share,
etc.).
Corbett & Delivery reliability (on-time B2B Survey data at the firm On-time delivery is positively associated with ROA in some countries. When
Claridge, 2002 delivery rate dimension) level from seven the sample is clustered by industry, the impact of on-time delivery is only
countries, n=371. evident in the electronics and fabricated metals industry.
Davis-Sramek et Operational order fulfillment B2B Survey data at the store Operational order fulfilment service has a strong positive impact on customer
al., 2008 service (including delivery level, n=396. satisfaction in the retail environment, which in turn increases loyalty.
reliability (on-time delivery rate
dimension) & speed)
Morash et al. Delivery reliability (on-time B2B Survey data at the firm Delivery reliability has the highest CEO-perceived importance score while
1996 delivery rate dimension) & speed level, n=65 deliver speed is ranked 4th out of eight logistics capabilities. Delivery speed
is positively associated with Growth in ROI, Growth in ROS, and ROS.
Delivery reliability is associated with only Growth in ROS, and ROS,
suggesting delivery speed is particularly associated with growth
opportunities.
Rosenweig et al., Delivery reliability (on-time Survey data at the firm Delivery reliability directly impacts ROA and customer satisfaction. More
2003 delivery rate dimension) level, n=238 importantly, the influence of integration intensity on ROA is partially
mediated by the delivery reliability capability.
Vaidyanathan & Fulfilled order timeliness (a B2B Survey data at the firm Information flow positively affect order fulfillment performance, which in
Devaraj, 2008 construct involves items measuring level, n=131 turn, positively affect e-procurement customer satisfaction.
on-time rate and lead time)
Griffis et al. Delivery speed (order fulfillment B2C Consumer survey, n=791 Short delivery time is associated with order fulfillment quality and purchase
2012 cycle time) satisfaction, and is incremental in creating referrals for online retailers.
Rao et al., 2011 Delivery reliability (late delivery B2C Online consumer order Delivery failures (delay) in online retailing have adverse effects on order
dimension) data, n=237, single firm frequency, order size and customer anxiety.
Rao et al., 2014 Delivery reliability (a variant of on- B2C Online consumer order Apart from the effect of communicating inventory information with
time rate that also involves data, n=6732, single firm. customers, delivery reliability is negatively associated with product returns.
promised delivery times) The association is stronger when fast delivery is promised by the retailer.
Analytical
Boyaci & Ray, Delivery speed and reliability (the B2B Modeling & numerical The interaction of price, delivery lead time and delivery speed and capacity
2006 likelihood of on-time delivery) simulation cost jointly affect the optimal operations strategy decision.
Li & Lee 1994 delivery speed (manufacturing B2B Modeling The results suggest that customer preferences are affected by not only price
processing rate) and quality but also delivery speed. Rapid response does give a
manufacturer the advantage of price premium and market share.
So and Song, Delivery speed B2B Modeling & numerical A mathematical framework is proposed to understand the interrelations
1998 simulation among pricing, delivery time guarantee and capacity expansion decisions.
High delivery speed leads to price premium and a larger market share.
Conceptual
Johnson & Delivery speed and reliability (on- B2B N/A The paper discusses the change of order fulfillment matrix at HP. It is
Davis, 1998 time delivery rate dimension) suggested that if the same metrics are used throughout the organization and
everyone knows what they mean and why they’re looking at them the
business’s overall performance will improve.
Pyke et al., 2001 Delivery speed and reliability B2B N/A The paper compares e-fulfillment with traditional fulfillment in the furniture
industry and proposes challenges and opportunities for furniture e-retailers.
Antecedents of delivery performance

Empirical
Ahmad & Delivery reliability (on-time B2B Survey data at the plant Electronic data interchange (EDI) use is positively related to on-time delivery
Schroeder, 2001 delivery rate dimension) level, n=85. rate.
Handfield & Delivery reliability (on-time B2B Survey data at the firm Delivery speed and reliability are unique manufacturing capabilities and there
Pannesi, 1992 delivery rate dimension) & speed level, n=193 (test for is a tradeoff between them. Delivery reliability can be improved via better
(tested separately) reliability) and interviews planning and scheduling while delivery speed can only be improved
with 13 managers (test for through decreasing lead times. This contradicts the belief that firms should
delivery speed) strive for both speed and reliability using the same strategic plan.
Sawhney & Delivery speed and reliability (late B2B Survey data at the firm Effective interfaces between marketing and operations can reduce delivery
Pipper, 2002 delivery dimension) level, n=74. delay and shorten promised lead time.
Silveira & Delivery speed and reliability (on- B2B Survey data at the firm Supplier coordination investment improves manufacturing lead-time.
Arkader 2007 time delivery rate dimension) level, n=243. Customer coordination investment improves manufacturing lead-time and
delivery reliability.
Vachon & Delivery speed and reliability (late B2B Survey data at the firm Results find that complicatedness of the process and uncertainty negatively
Klassen, 2002 delivery dimension) level, n=469 affect delivery performance. In contrast, little evidence was found that
greater product variety and more complicated supply networks adversely
affected delivery performance.

Rabinovich & Delivery speed and reliability (late B2C Online consumer order Shipping and handling charges are good indicators of online retailer’s
Bailey, 2004 delivery dimension) data, n=808. distribution service. High net price items tend to have low reliability. New
vendors tend to outperform their incumbent competitors.
Analytical
Apte & Mason, Delivery speed N/A The simulation is based The use of cross-docking reduces the time an item spends in the delivery
2006 on data from the San system by almost half. The finding enhances the idea that operational
Francisco Public library concepts affect delivery performance.
Barman & Delivery speed and reliability (the B2B Modeling & numerical In general, priority rule combinations that are effective for delivery speed are
Laforge, 1998 standard deviation of flow time) simulation not effective for delivery reliability. Certain priority rule combinations
affect performance in predictable ways, allowing the manufacturers to
assess tradeoffs between delivery speed and delivery reliability.
Rao et al. 2005 Delivery speed B2B Modeling & numerical For a make-to-order environment, optimal delivery speed (guaranteed uniform
simulation lead time) has a closed-form solution with a newsvendor-like structure.
Conceptual
Sarmiento et al., Delivery reliability (on-time B2B Summary of previous Report empirical evidence about the compatibility/trade-offs between delivery
2007 delivery rate dimension) empirical findings reliability and other manufacturing capabilities.
Table 3: Differences between OEM Customers and Trade Customers

OEM Customer Trade Customer
A wholesaler or retailer that serves as an intermediary
A manufacturer that assembles its own products
Definition in our study link between the manufacturers and the lower-tier
using components from various suppliers.
customers.
General comparison
• Value-added assembly (transform materials • Immediate availability of products (short lead-time)
into finished products) • Large variety of products (better assortment of
Value to buyers • Customization (carter to specific customer products, easy searching for alternatives)
needs when requested) • Value-added services (e.g., free shipping from store
• Products available in large quantity to house, free hook-up, after sales services)
Product variety (finished A wide range of different products, many of them
A few similar products
goods) available from competing vendors
Hold minimum quantities of materials to Hold small quantities of many different products to
Inventory management
maintain smooth production achieve designed customer service levels.
Product assembly Yes No
Need to coordination with
High Medium to low
suppliers
Cost of changing suppliers High Medium to low
Usefulness of delivery capabilities
• Reduce operations variability and smooth
• Ensure product availability
the production flow
• Avoid product shortage
• Make effective coordination of inputs from
On-time delivery • Avoid loss of sale
difference sources possible
• Enable effective management of product assortment
• Ease the development of master production
plan
• Avoid loss of sale
• Reduce manufacturing lead time for • Enhance product availability
customer orders • Improve capital utilization (capital is tied up with
delivery speed (lead time)
• Reduce safety stock and inventory related inventory for a shorter period of time)
costs
• Reduce safety stock and inventory related costs
• Avoid production disruptions
• Reduce safety stock and inventory related
delivery inaccuracy (date costs • Reduce the possibility of stock-out
deviation) • Eliminate non-value-added activities (e.g., • Improve efficiency
storage of early delivers, insurance)
• Improve efficiency

Table 4: List of variables
Variable name Definition
UnitStarted (000) Number of housing units started by month (U.S. Census Bureau)
MonthQty Number of product units delivered across all customers each month
MonthTXNCount Transaction count across all customers by month
CustMonthTXNCount Transaction count for each customer by month
TXNQty Transaction quantity, i.e., the number of units purchased in the current transaction
PctTradeQty Percentage of units order by trade customers in each month
UnitPrice The purchase price per unit in dollars, adjusted by producer price index (PPI)
AvgOnTimeRate The percentage of transactions delivered on time for a particular customer
EarlyDelInaccy Early delivery inaccuracy for each customer, defined as the running average of normalized absolute deviation of the early deliveries
LateDelInaccy Late delivery inaccuracy for each customer, defined as the running average of normalized absolute deviation of the late deliveries
*Normalized absolute deviation = Absolute deviation from promised delivery date/Fulfillment Cycle Time
DelSpeed Delivery speed for each customer, defined as the running average of fulfillment cycle time with the effect of order quantity
partialled out.
* Fulfillment cycle time with the effect of order quantity partialled out.= residual obtained by regressing cycle time on order
quantity
ProductID A list of dummies representing different product items
CustomerID A list of dummies representing different customers
Table 5: Descriptive statistics of raw data

Mean SD Min Max
Combined OEM Trade Combined OEM Trade Combined OEM Trade Combined OEM Trade
Variables used in the regression
models
a
UnitStarted 161.79 - - 23.96 - - 112.4 - - 197.9 - -
MonthQty (OEM and trade
customers) 33363 28610 4791 6870 6403 978 3518 3147 1522 46147 42003 6770
MonthTXNCount 1,227 220 680 202 61 139 304 29 73 1,575 347 943
Price to assembly cost ratio - 1.78 2.21 - 1.78 0.97 - 0.60 0.54 7.64 13.21
CustMonthTXNCount 17.68 18.56 17.39 18.59 22.98 16.93 1 1 1 118 118 106
130.1 237.1
TXNQty
37.09 7 7.02 129.17 4 13.97 1 1 1 3200 3200 580
PctTradeQty 0.149 - - 0.032 - - 0.105 - - 0.244 - -
UnitPrice 73.22 63.92 76.22 33.13 26.51 34.36 3.69 4.65 3.69 209.13 190.25 209.13
AvgOnTimeRate 0.61 0.82 0.54 0.25 0.15 0.23 0 0 0 1 1 1
EarlyDelInaccy 0.83 1.09 0.79 0.87 1.28 0.78 0.002 0.02 0.002 7.57 7.57 6.60
LateDelInaccy 2.30 2.14 2.66 2.47 1.82 2.66 0.003 0.02 0.003 66.17 51 66.17
DelSpeed 9.15 25.16 3.91 17.28 29.31 2.78 0 0 0 232 232 147
Related variables not used in the
regression models
CV of transaction quantity 1.39 0.99 1.52 0 0 0.27 3.70 1.65 3.70
CV of delivery lead time 0.92 0.74 0.97 0.01 0.01 0.01 4 3.34 4
Monthly transaction frequency by
Customers 18.04 18.48 17.35 1 1 1 118 118 106
a
Housing units are in thousand.

Table 6: Correlation matrix of the non-categorical variables
1 2 3 4 5 6 7 8 9 10
1. aTXNQty
2.UnitPrice -0.258***
3.UnitStarted 0.049*** 0.011
4.MonthQty 0.051*** 0.021** 0.464***
5.MonthTXNCount 0.000 0.030** -0.154*** 0.568***
6.CustMonthTXNCount 0.105*** -0.086*** -0.089*** 0.065*** 0.190***
7. PctTradeQty -0.058*** -0.007 -0.612*** -0.410*** 0.371*** 0.129***
8.AvgOnTimeRate 0.287*** 0.006 -0.015** 0.104*** 0.109*** -0.210*** 0.005
a
9. EarlyDelInaccy -0.347*** 0.105*** -0.057*** 0.141*** 0.188 0.020** 0.029** -0.079***
10.aLateDelInaccy -0.287*** 0.098*** 0.038*** 0.060*** 0.035*** 0.273*** -0.0475** -0.468*** 0.283***
11.aDelSpeed 0.184*** -0.099*** -0.008 0.035 0.051*** -0.029** -0.016** 0.315*** -0.348*** -0.245***
*p < 0.05; **p < 0.01; ***p<0.001 aLog transformed

Table 7: Regression results
Transaction quantity equations (Instrumental variable Unit price equations (OLS regression
regression) with clustered robust errors)
Model I Model II Model I Model II
Constant 1.238**(0.423) 0.973* (0.426) -22.28***(3.951) -25.340*** (3.985)
a
CustomerID dummies Included Included Included Included
ProductID dummies Included Included Included Included
UnitStarted 0.0003(0.0003) 0.0005 (0.0003) 0.007* (0.003) 0.007*(0.003)
MonthQty 9.41×10-6 ***(1.5×10-6) 8.21×10-6 *** (1.5×10-6) 7.19×10-5*** (1.1×10-5) 7.34×10-5***(1.1×10-5)
MonthTXNCount -1.20×10-4 * (5.02×10- -8.60×10-5 * (4×10-5) -0.003** (0.0005) -0.003**(0.005)
5
)
-0.005*** (0.0005) -0.004*** (0.0005)
CustMonthTXNCount -0.053***(0.004) -0.047*** (0.004)
PctTradeQty -0.269(0.272) -0.250(0.273) 4.735(2.919) 4.856(2.919)
UnitPrice 0.001 (0.001) 0.001 (0.001)
TXNQty -0.002*** (0.0004) -0.003***(0.0004)
AvgOnTimeRate H1a 0.048 (0.057) 0.044 (0.064) H1b 3.847*** (0.509) 3.619***(0.579)
EarlyDelInaccy H2a 0.089 (0.050) 0.061 (0.053) H2c 0.497 (0.398) 0.840(0.450)
LateDelInaccy H2b -0.075*** (0.013) -0.021 (0.015) H2d -0.073 (0.124) 0.317*(0.150)
DelSpeed H3a 0.084(0.045) 0.04 (0.033) H3b -0.651** (0.223) -1.719***(0.364)
EarlyDelInaccy×OEMCustomer H4a -0.002 (0.112) H4c -2.953**(0.975)
LateDelInaccy×OEMCustomer H4b -0.118*** (0.027) H4d -0.919***(0.255)
DelSpeed×OEMCustomer H5a 0.285*** (0.049) H5b 1.756***(0.419)
N 30,866 30,866 31,143 31,143

p-value 0.000 0.000 0.000 0.000
Adjusted R-square 0.735 0.736 0.940 0.941
Root MSE 0.830 0.830 8.053 8.048
*p < 0.05; ** p < 0.01; ***p<0.001; Standard errors are reported in parentheses.
a
While OEM customer dummy is supposed to be in the regression model, this variable overlaps completely with the dummies CutomerID since individual customers
are either OEM or trade customers. Therefore, the regression does not include OEM customer dummy.

Assembly Manufacturing Supply Chain

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Assembly Manufacturing Supply Chain

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Exploring the Impact of Delivery Performance on Customer Transaction Volume and Unit Price:

Evidence from an Assembly Manufacturing Supply Chain

David Xiaosong Peng, Associate Professor

Guanyi Lu, Assistant Professor

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Delivery date inaccuracy

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4.2. Data and Variables

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4.3. Estimation Methods

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𝑇𝑇𝑇𝑇𝑇𝑇 = 𝛽0 + 𝛽1𝑐 � 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑐 + 𝛽2𝑝 � 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑝 + 𝛽3 𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈 + 𝛽4 𝑀𝑀𝑀𝑀ℎ𝑄𝑄𝑄

+ 𝛽5 𝑀𝑀𝑀𝑀ℎ𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 + 𝛽6 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶ℎ𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 + 𝛽7 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 + 𝛽8 𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈

𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈 = 𝛽0 + 𝛽1𝑐 � 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑐 + 𝛽2𝑝 � 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑝 + 𝛽3 𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈 + 𝛽4 𝑀𝑀𝑀𝑀ℎ𝑄𝑄𝑄

+ 𝛽5 𝑀𝑀𝑀𝑀ℎ𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 + 𝛽6 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶ℎ𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 + 𝛽7 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 + 𝛽8 𝑇𝑇𝑇𝑇𝑇𝑇

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4.5. Post hoc Analysis

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5.1. Theoretical Insights

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Impacts of delivery performance on transaction quantity

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5.2. Managerial Implications

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5.3. Limitations and Future Research Directions

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Afeche, P. 2006. Incentive-compatible revenue management in queuing systems: Optimal strategic

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Figure 2: The plots of interaction effects

delivery lead time

Panel 1. Effects on transaction quantity

Panel 2. Effects on unit price

Table 1: Definitions of Delivery Performance Dimensions

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Antecedents of delivery performance

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Table 3: Differences between OEM Customers and Trade Customers

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Table 5: Descriptive statistics of raw data

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N 30,866 30,866 31,143 31,143