AI and Analytics for Business

Research Paper Series

A Quality Value Chain Network: Linking Supply Chain Quality to Customer Lifetime Value

We create a quality value chain network concept to analyze the impact of supply chain quality (SCQ) on the customer lifetime value (CLV). We apply our framework to a rich dataset from a major restaurant chain utilizing text analysis of the complaints to measure SCQ, a two-stage least squares (2SLS) model with instruments to assess the impact of SCQ on customer experience, and a structural model of consumer purchasing behavior to eventually link customer experience to CLV. Note that we consider not only the impact of customer experience at the focal store but also that from adjacent stores on CLV. Considering such network effect significantly improves the model performance in predicting customer behavior and quantification of financial returns. We identify the profile of the most valuable customers and provide insights on which SCQ issues the supply chain should focus on, and which restaurants should be prioritized for supply chain improvements.

Keywords: Quality Value Chain, Service Network, Customer Lifetime Value, Structural Estimation, Causal Inference