Behavioral pitfalls of product proliferation in supply chains: An experimental study

Abstract

We study how increased complexity in terms of increased stock‐keeping units and/or markets can affect operational performance, with an emphasis on managerial decision‐making. Specifically, when given the option to increase profits by increasing the number of markets served, we ask whether managers can increase profits by exercising this option or does increased complexity become a burden? We conduct a human‐subjects experiment in which subjects manage a simulated supply chain across different levels of complexity, either as individuals or as part of a team. Subjects receive initial training in supply chain management and participate twice in the simulation—once as an individual and once as a team, while also varying complexity across trials. We show that as complexity increases, revenues also increase. However, average performance often deteriorates and many subjects destroy value, despite the increased opportunities for profit. We argue that managers are tempted to chase new revenue sources without understanding the costs or risks to future profits. In a follow‐up experiment, we show that when subjects are reminded about the importance of opportunity costs, revenue declines but earnings are the same or higher. Lastly, our experiments show that both teamwork and experience increase performance and reduce the variance of earnings. Experienced teams make better investment decisions. Less experienced individuals focus on revenue rather than earnings.

Safety in context: routines and the effect of a balanced safety and operations focus on worker perceptions and performance

“…, 2017). Furthermore, our experimental design allowed us to control scenarios in a way that could not be done with other types of empirical work (Hyndman and Menezes, 2021).…”

“…Simulators allow researchers to study behavior in real-world pressure situations without putting the participant, or the public, at risk (Fitzpatrick et al, 2017). Furthermore, our experimental design allowed us to control scenarios in a way that could not be done with other types of empirical work (Hyndman and Menezes, 2021).…”

Pulled in opposite directions: A joint consideration of supply and demand uncertainty in supply chain decision‐making

“…These results have been shown to be very robust, with researchers including Bolton and Katok (2008), Lurie and Swaminathan (2009), Bolton et al (2012), and numerous others replicating and extending the original findings. The tendency of decision‐makers to use anchoring and insufficient adjustment heuristics has been observed in various settings that induce demand uncertainty, including service‐level dependent, endogenous demand Paul et al (2022), and product proliferation Hyndman and Menezes (2022). Whereas 20 years of research examines pull‐to‐center bias in the context of demand uncertainty, our research extends this prior work by examining how an additional source of uncertainty—that is, supply, rather than demand uncertainty—affects the pull‐to‐center bias.…”