For the future and from afar: Psychological distance and inventory decision‐making

Abstract

Determining inventory ahead of knowing customer demand is a crucial decision for many businesses. Although it is possible to select the ideal order quantity given the costs of over and undersupplying demand, prior research demonstrates that decisionmakers consistently make suboptimal inventory choices. Drawing on construal level theory and psychological distance, this paper explores how differences in the spatial distance (suppliers that are geographically near or far) and temporal distance (short or long lead time from order to receipt) impact newsvendor decision-making. Across four experiments (N = 663), we find that a far psychological distance increases order quantities, which improves performance for high-margin products but results in added costs for low-margin goods. Given that spatial and temporal distances occur naturally in supply chains, our research shows that psychological distance is a cognitive explanation for biased inventory ordering and can be applied to improve decision-making.

The effect of acute stress on humanitarian supplies management

“…Consequently, we are able not only to explain changes in newsvendor performance under stress on both psychophysiological and computational levels but also to effectively link these two levels of explanation with each other. Our results extend previous studies that establish the presence of biases in newsvendor decision‐makers generally (e.g., Schweitzer & Cachon, 2000) and individual differences between them (e.g., Moritz et al., 2013), by showing that the strength of biases may be modulated by contextual factors (see also Kirshner & Moritz, 2023).…”

Unpacking the cognitive processes of the boundedly rational newsvendor

“…Research suggests that the cognitive process responsible for performance in most experiments could be associated with varying levels of abstraction, such as differences in the "what" of an event, scenario, or object (Kirshner & Moritz, 2023). Construal-level theory, which elucidates variations in individuals' processing, perception, and actions during an event, might offer an explanation for this performance drop.…”

Pulling together: Does supplier digital transformation affect customer risk‐taking capability?

“…On the one hand, an increase in the degree of interaction between companies and customers will help companies timely identify and accurately determine the real performance information of each other, thereby alleviating the problems of adverse selection and moral hazard caused by information asymmetry. Therefore, compared with distant customers, supplier companies are more likely to identify nearby customers and establish supply relationships with them (Kirshner & Moritz, 2023). On the other hand, an increase in the degree of interaction between suppliers and customers can reduce communication costs (Malloy, 2005).…”