Behavioral Implications of Demand Perception in Inventory Management

The newsvendor problem is one of the rudimentary problems of inventory management with significant practical consequences, thus receiving considerable attention in the behavioral operational research literature. In this chapter, we focus on how decision makers perceive demand uncertainty in the newsvendor setting and discuss how such perception patterns influence commonly observed phenomena in order decisions, such as the pull-to-center effect. Drawing from behavioral biases such as over precision, we propose that decision makers tend to perceive demand to be smaller than it actually is in high margin contexts, and this effect becomes more pronounced with increases in demand size. The opposite pattern is observed in low margin settings; decision makers perceive demand to be larger than the true demand, and this tendency is stronger at lower mean demand levels. Concurrently, decision makers tend to perceive demand to be less variable than it actually is, and this tendency propagates as the variability of demand increases in low margin contexts and decreases in high margin contexts. These perceptions, in turn, lead to more skewed decisions at both ends of the demand spectrum. We discuss how decision makers can be made aware of these biases and how decision processes can be re-designed to convert these unconscious competencies into capabilities to improve decision making

The Impacts of Quick Response in a Dual-Channel Supply Chain

Part 2: Service Engineering Based on Smart Manufacturing CapabilitiesInternational audienceWe consider the quick response (QR) in a dual-channel supply chain in which a manufacturer sells products through both its own direct channel and a retailer. With QR, the retailer has an opportunity to reorder after the random demand is realized and the manufacturer is able to reproduce after that. We characterize the equilibrium decisions for each channel and investigate the impacts of QR on the decisions and profits. Through numerical analysis, we show that QR may be beneficial to the manufacturer whereas either increases or decreases the optimal expected profit of the retailer. In addition, the supply chain is able to achieve Pareto improvement with QR under certain conditions