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

Syntetos, Aris A. ORCID:, Kholidasari, Inna and Naim, Mohamed M. ORCID: 2016. The effects of integrating management judgement into OUT levels: in or out of context? European Journal of Operational Research 249 (3) , pp. 853-863. 10.1016/j.ejor.2015.07.021

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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 organizations 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 1,800 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.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Centre for Advanced Manufacturing Systems At Cardiff (CAMSAC)
Subjects: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Uncontrolled Keywords: Judgemental adjustments; Inventory management; Behavioural operations
Additional Information: Available online 15 July 2015
Publisher: Elsevier
ISSN: 0377-2217
Date of First Compliant Deposit: 30 March 2016
Date of Acceptance: 8 July 2015
Last Modified: 08 Nov 2023 00:49

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