Lead Time Optimism: The Impact of Supply Timing Uncertainty on Ordering Behavior

31 Pages Posted: 1 Dec 2023

See all articles by Simone Balvers

Simone Balvers

Tilburg University - Tilburg University School of Economics and Management

Eirini Spiliotopoulou

Tilburg University - Tilburg University School of Economics and Management

Jan C. Fransoo

Tilburg University - Tilburg University School of Economics and Management

Date Written: November 23, 2023

Abstract

Problem definition: Decision-makers face different forms of supply uncertainty when making ordering decisions. This paper focuses on two forms of supply timing uncertainty: lead time uncertainty and review period uncertainty (i.e., uncertainty in the time between two order moments). Both forms of supply timing uncertainty are widely present in the nanostore retail channel, and can also be encountered in other settings. In this paper, we analyze the implications of supply timing uncertainty on ordering behavior. Methodology/results: Using an experimental design, we find that subjects order more under lead time uncertainty than under review period uncertainty, for both high and low margin products. We identify as an underlying mechanism the tendency of decision-makers to underestimate the expected lead time, while this is not necessarily the case for the expected review period. Interestingly, the underestimation of the expected lead time is not mitigated by reducing the lead time uncertainty. Managerial implications: Our results suggest the existence of a new bias: ‘lead time optimism’. Understanding the implications of lead time optimism on ordering behavior is essential for suppliers of nanostores since it results in systematically biased ordering
behavior. Suppliers that are considering making changes in visit frequency or lead times should take account of the effect of lead time optimism on the resulting changes in ordering behavior.

Keywords: behavioral operations, supply uncertainty, nanostores, experiments

Suggested Citation

Balvers, Simone and Spiliotopoulou, Eirini and Fransoo, Jan C., Lead Time Optimism: The Impact of Supply Timing Uncertainty on Ordering Behavior (November 23, 2023). Available at SSRN: https://ssrn.com/abstract=4642419 or http://dx.doi.org/10.2139/ssrn.4642419

Simone Balvers (Contact Author)

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Eirini Spiliotopoulou

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Jan C. Fransoo

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://https://www.tilburguniversity.edu/staff/jan-fransoo

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