Customer Service Effect in Parts Distribution System Design

A mixed two‐level system is considered for parts distribution. Three approaches are studied for the division of the total item set S into subsets S⊂1 and S⊂2. The subset S⊂1 includes items directly served by the company to the end‐users and subset S⊂2 includes items served through dealers. These approaches are dealer item‐based, company item‐based and system‐based. The systems approach is compared with the two item‐based approaches from the dealer′s and company′s point of view. A market sensitivity model is developed in the systems approach,which considers the effect of customer service(primarily average delivery time and number of items in set S⊂2) on the captured market share. Optimisation of total expected profit, based on a system′s approach, leads to higher profit levels and to a larger subset S⊂2 than obtained from the two item‐based approaches.