The impact of combination of decision makers’ heuristics on the supply chain performance

Abstract

Analytical newsvendor models assume that order decision makers can place optimal orders to maximize profit, but many of their actual decisions are apart from the optimal quantity. Many scholars in operations management have presumed that the problem might occur in the middle of decision-making process and they attempted to verify the cognitive concept, heuristics. Consequently, three typical behaviors by heuristics were discovered: (1) mean anchoring (2) demand chasing, and (3) gambler fallacy. The purpose of this study is to testify how performance is influenced by the combination of diverse or same decision maker’s heuristics in a supply chain, then to verify the finest combination for the highest profit. This study suggests theoretical background of the heuristics, and simulated results from previous empirical evidences reflect which heuristics is hazardous. In addition, it recommends the suitable heuristics relying on various environments around the decision maker.

Keywords:

• ordering behavior
• newsvendor
• heuristics
• mean anchor
• demand chase
• gambler fallacy

Acknowledgement 

This work was supported by the C-ITRC Support Program (H0401-14-1021, Development of KULAV (Korean Unmanned Logistical Air Vehicle) Based Tactical Logistics Convergence System funded by the Ministry of Science, ICT and Future Planning (MSIP, Republic of Korea). The authors also thank to the anonymous reviewers for valuable comments.