Lead Time Optimism: The impact of Supply Timing Uncertainty on Ordering Behavior By: Simone Balvers, Eirini Spiliotopoulou, Jan Fransoo
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.
Available at SSRN: https://ssrn.com/abstract=4642419 or http://dx.doi.org/10.2139/ssrn.4642419
Sales Agent, Call Center, or App? Their Impact on Nanostore Ordering Behavior By: Simone Balvers, Youssef Boulaksil, Jan Fransoo
Abstract: The sales process to small retailers in developing countries is rapidly undergoing a digital transformation. The introduction of new sales channels facilitated by digital ordering solutions can boost sales by increasing the availability of ordering options, but can also disrupt established sales and distribution processes. We collaborate with a Moroccan digital-enabled distributor to analyze the impact of the introduction of digital sales channels on the ordering behavior of nanostores. We find that the adoption of digital sales channels (i.e., call center and app) increases the total order value and the order frequency, suggesting a complementary effect. In addition, we find that the order variety is impacted differently across the two sales channels, which can be explained by the passive ordering behavior of nanostores. Finally, we find that nanostores more often reject orders on delivery after app adoption (an example of a negative impact on distribution). We build on these results by providing insights into when a nanostore supplier should invest in adding a sales or call center agent given the different cost structures of the two sales channels. We show that considering the store density is essential when making this trade-off.
Simone Balvers 