Equivalent Supply Chain Metrics. A Behavioral Perspective
36 Pages Posted: 12 Aug 2015
Date Written: August 11, 2015
We analyze how performance metrics that contain the same information affect actual decisions. We consider two such metrics from inventory management, days of supply and inventory turn rate, where one is the inverse of the other. We argue that individuals tend to assess performance based on the metrics as opposed to the fundamental attributes that actually matter and develop behavioral models that build on this effect. The models suggest that better investment decisions are made under metrics that are proportional to fundamental attributes, such as the days of supply metric. They also indicate that motivation and effort are higher under metrics that increase over-proportionally with the fundamental attribute, such as the inventory turn rate metric. In laboratory experiments, we find support for the model predictions. The results highlight the importance of including behavioral factors in metric design and provide guidance for matching metrics with managerial objectives.
Keywords: Behavioral Operations Management, Decision Biases, Performance Metrics, Supply Chain Management
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