Exploring retailers' ordering decisions under delays

When final customer demand exceeds available supply, retailers often hedge against shortages by inflating orders to their suppliers. While this amplification in orders is clearly described in the literature, there is little experimental research quantifying the factors influencing these amplifications. We use an experiment to test subjects’ ordering decisions under different ordering and supplier's capacity acquisition delays. Subjects in the experiment display limited ability to process the impact of delays and feedback. The order trajectories follow a pattern of overshoot and subsequent undershoot until reaching an equilibrium. However, the initial overshoot is less intense and lasts longer than the optimal behavior, when subjects face longer delays. In addition, subjects inflate their orders when the supplier faces longer capacity acquisition delays and when orders take longer to be perceived by the supplier. Econometric estimates show that the proposed anchoring and adjustment heuristic is a possible heuristic for explaining subjects’ ordering behavior. Copyright 2015 System Dynamics Society