The effects of integrating management judgement into OUT levels: In or out of context?

Aris A. Syntetos, Inna Kholidasari and Mohamed M. Naim

European Journal of Operational Research, 2016, vol. 249, issue 3, 853-863

Abstract: Physical inventories constitute a significant proportion of companies’ investments in today's competitive environment. The trade-off between customer service levels and inventory reserves is addressed in practice by statistical inventory software solutions; given the tremendous number of Stock Keeping Units (SKUs) that contemporary organisations deal with, such solutions are fully automated. However, empirical evidence suggests that managers habitually judgementally adjust the output of such solutions, such as replenishment orders or re-order levels. This research is concerned with the value being added, or not, when statistically derived inventory related decisions (Order-Up-To (OUT) levels in particular) are judgementally adjusted. We aim at developing our current understanding on the effects of incorporating human judgement into inventory decisions; to our knowledge such effects do not appear to have been studied empirically before and this is the first endeavour to do so. A number of research questions are examined and a simulation experiment is performed, using an extended database of approximately 1800 SKUs from the electronics industry, in order to evaluate human judgement effects. The linkage between adjustments and their justification is also evaluated; given the apparent lack of comprehensive empirical evidence in this area, including the field of demand forecasting, this is a contribution in its own right. Insights are offered to academics, to facilitate further research in this area, practitioners, to enable more constructive intervention into statistical inventory solutions, and software developers, to consider the interface with human decision makers.

Keywords: Judgemental adjustments; Inventory management; Behavioural operations (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377221715006542
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:249:y:2016:i:3:p:853-863

DOI: 10.1016/j.ejor.2015.07.021

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().