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

•It is common practice that statistical inventory decisions are judgmentally adjusted.•The effect of such adjustments has not been studied empirically.•This is the first endeavour to do so using 1800 SKUs from an electronics company.•The linkage between adjustments and their justification is examine...

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Bibliographic Details
Published in:European journal of operational research 2016-03, Vol.249 (3), p.853-863
Main Authors: Syntetos, Aris A., Kholidasari, Inna, Naim, Mohamed M.
Format: Article
Language:English
Subjects:
Behavioural operations
Customer services
Decision analysis
Inventory management
Judgemental adjustments
Studies
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Summary:•It is common practice that statistical inventory decisions are judgmentally adjusted.•The effect of such adjustments has not been studied empirically.•This is the first endeavour to do so using 1800 SKUs from an electronics company.•The linkage between adjustments and their justification is examined.•Useful insights are offered to academics, practitioners and software developers. 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.
ISSN:0377-2217
1872-6860
DOI:10.1016/j.ejor.2015.07.021