Chicken or the egg? Forecast and order adjustments in supply-chain planning

Abstract

Human judgment remains an essential element in supply chain planning. Forecasters create demand predictions, which become inputs into inventory plans. They also adjust these demand predictions based on their judgment. Inventory planners also adjust the resulting orders based on their judgment. Should firms allow forecasts or inventory orders to be adjusted? In a series of behavioral experiments, we compare forecast to order adjustments. Surprisingly, order adjustments are a better avenue to incorporate human judgment. We examine the causes of this difference and discuss its implications.

Keywords: judgment, forecasting, behavioral operations, inventory planning