Behavioral Causes of the Bullwhip Effect and the Observed Value of Inventory Information

Croson, Rachel; Donohue, Karen

doi:10.1287/mnsc.1050.0436

Cited by 461 publications

(399 citation statements)

References 33 publications

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“…In contrast to the theory proposed by Bowman, many researchers have examined managerial behavior using real-life data and laboratory experiments, and found that managers' decisions do not correspond to the expected profit-maximizing decisions due to the complexity of the situation (Deshpande et al 2003, Keizers et al 2003 or some form of decision bias (Schweitzer andCachon 2000, Croson andDonohue 2006). Unlike the settings in these papers, store managers in our setting are provided an automated system and voluntarily choose to deviate from it.…”

Section: Literature Reviewmentioning

confidence: 82%

Ordering Behavior in Retail Stores and Implications for Automated Replenishment

et al. 2010

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Retail store managers may not follow order advices generated by an automated inventory replenishment system if their incentives differ from the cost minimization objective of the system or if they perceive the system to be suboptimal. We study the ordering behavior of retail store managers in a supermarket chain to characterize such deviations in ordering behavior and investigate their potential drivers. Using orders, shipments, and POS data for 19, 417 item-store combinations over 5 stores, we find that store managers systematically modify automated order advices by advancing orders from peak to non-peak days. We show that order advancement is explained significantly by hypothesized product characteristics, such as case-pack size relative to average demand per item, net shelf space, product variety, demand uncertainty, and seasonality error. Our results suggest that store managers add value. They improve upon the automated replenishment system by incorporating two ignored factors: in-store handling costs and sales improvement potential through better in-stock. We test a heuristic procedure, based on our regression results, to modify order advices to mimic the behavior of store managers. Our method performs better than the store managers by achieving a more balanced handling workload with similar average days of inventory.

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Section: Literature Reviewmentioning

confidence: 82%

Ordering Behavior in Retail Stores and Implications for Automated Replenishment

et al. 2010

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“…Earlier experiments show that whether managers and students behave differently depends on the context. Most studies with operations management contexts have shown that the two groups behave similarly (see Croson and Donohue 2006, Bolton et al 2012, Lim and Ho 2007 for examples of beer game, newsvendor, and contracting experiments). In other contexts, experienced professionals are also shown to exhibit similar behavioral biases as observed in lab experiments with student participants (e.g., Cooper et al 1999, Massey andThaler 2013), although evidence to the contrary also exist (e.g., Fehr and List 2004 the sample.…”

Section: Discussionmentioning

confidence: 99%

Trust, Trustworthiness, and Information Sharing in Supply Chains Bridging China and the United States

2014

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Whether and how trust and trustworthiness differ between a collectivist society, e.g., China, and an individualistic one, e.g., the U.S., generate much ongoing scientific debate and bear significant practical values for managing cross-country transactions. We experimentally investigate how supply chain members' countries of origin -China versus the U.S. -affect trust, trustworthiness, and strategic information sharing behavior in a cross-country supply chain. We consider a two-tier supply chain in which the upstream supplier solicits demand forecast information from the retailer to plan production; but the retailer has an incentive to manipulate her forecast to ensure abundant supply. The levels of trust and trustworthiness in the supply chain and supplier's capability to determine the optimal production quantity affect the efficacy of forecast sharing and the resulting profits. We develop an experimental design to disentangle these three aspects and to allow for real-time interactions between geographically distant and culturally heterogeneous participants. We observe that, when there is no prospect for long-term interactions, our Chinese participants consistently exhibit lower spontaneous trust and trustworthiness than their U.S. counterparts do. We quantify the differences in trust and trustworthiness between the two countries, and the resulting impact on supply chain efficiency. We also show that Chinese individuals exhibit higher spontaneous trust towards U.S. partners than Chinese ones, primarily because they perceive that individuals from the U.S. are more trusting and trustworthy in general.This positive perception towards U.S. people is indeed consistent with the U.S. participants' behavior in forecast sharing. In addition, we quantify that a Chinese supply chain enjoys a larger efficiency gain from repeated interactions than a U.S. one does, as the prospect of building a long-term relationship successfully sustains trust and trustworthiness by Chinese partners. We advocate that companies can reinforce the positive perception of Westerners held by the Chinese population and commit to long-term relationships to encourage trust by Chinese partners. Finally, we also demonstrate that both populations exhibit similar pull-to-center bias when solving a decision problem under uncertainty (i.e., the newsvendor problem).*

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“…Finally, research in experimental economics has addressed this issue explicitly. Indeed, Dyer, Kagel, and Levine (1989) and Croson and Donohue (2006) find that 'real world' decision makers performed the same or sometimes worse in the laboratory setting than students. Nonetheless, additional research that uses other sampling frames, not just MBA/undergraduate students, would clearly provide additional value to the field.…”

Section: Discussionmentioning

confidence: 99%