The effect of customer satisfaction on design and profitability of supply chains

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It is well recognized that individual businesses have greater chance of success if they compete as supply chains rather than stand-alone entities. Since the success or failure of a supply chain is in the hands of customers, the ultimate goal of the chain is to meet the needs of its customers. This research proposal aims at investigating the effects of customer satisfaction on the profitability of supply chains. Revenue is directly affected by the number of customers and sales volume. Increased revenue can be achieved by satisfying customers through adopting effective loyalty programs and also designing responsive supply chains. Loyalty programs are structured marketing efforts that aim to enhance customers’ loyalty by rewarding their repeat purchase behaviour. Responsiveness, on the other hand, is defined as “the ability of a supply chain to respond rapidly to the changes in demand, both in terms of volume and mix of products.” This research involves two main components as follows. Component 1: In this component, we investigate the effectiveness of different loyalty programs on the profitability of a supply chain that consists of multi-site retailers and corresponds to a multi-echelon production-distribution network. If we only focus on loyalty programs in the form of monetary incentive and without paying attention to customer experience, dissatisfaction of customers may jeopardize the chain’s long-term profitability. In this research, supply chain’s responsiveness will be integrated with loyalty programs to achieve the maximum profitability. In order to make a supply chain more responsive, we may need to decide the number and locations of the retailers in areas close to customers. Therefore, the main focus of this component is on determining the locations of retailers to be built at the strategic level and structuring the supply chain’s loyalty program at the tactical level. Component 2: In this component, we develop a simulation model in as well as the mathematical model to investigate the effectiveness of different loyalty programs with respect to the behaviour of competitors within their own supply chains and their own loyalty programs. The proposed mathematical model in this component will be dynamic stochastic game. As there are so many loyalty policies which can be examined by all rival firms, and the effects of those policies and the interactions among the rivals in the market are not known with certainty, simulation models will be more appropriate here. These models can be used to investigate the effectiveness of individual policies and to determine the optimal points and rewards in each policy. Then, a game-theoretical model is developed to determine the chain’s best strategy based on those generated policies. In the next step, many other discrete policies will be generated by the simulation study and the process will continue until the best loyalty reward policy for the supply chain is reached.