The Effect Of The Supply Chain Members' Over-precision On Decision Making

Over-precision is one of the most common cognitive biases,and agents'over-precision not only affects their own decision but also has influence on the company's profit in corporation.At present,the research on over-precision behavior is mainly concentrated in the field of psychology and finance.In the field of psychology,as long as it is focused on qualitative research,such as over-precision measurement,manifestation,the impact of consumer buying behavior and so on.In the field of finance,we only need to study the impact of over-precision on agents' investment decisions.However,there are few studies in the field of operation management,in which area,the inventory decision-making is one of the most basic topics.Therefore,this paper mainly studies the influence of over-precision on inventory decision-making of supply chain members.Combining with psychological knowledge,a game model is established and corresponding conclusions are given.This paper may contribute to enriching the research of inventory management decision.And to provide enterprises with employment decision-making to help enterprises or supply chain optimization,improve the overall operational efficiency of the supply chain.This study is divided into two parts.First,this paper investigates a supply chain composed of a retailer and a manufacturer.The retailer sells seasonal products ordered from the manufacturer and has two ordering opportunities in a demand uncertain setting.Given price contracts the retailer decides to order,the manufacturer produces to at least satisfy the retailer's order quantity before demand uncertainty is realized.The retailer has a chance to replenish products from the manufacturer after demand uncertainty is realized.The paper finds that the retailer's over-precision leads to order more/less under the low/high profit-margin setting.The paper illustrates that the rational manufacturer may be hurt by the retailer's over-precision,and the manufacturer may benefit from its own over-precision whether dealing with the rational or irrational retailer.If the manufacturer and the retailer can choose to hire rational or over-precision managers,the manufacturer hiring an over-precision manager and the retailer hiring a rational manager may be an equilibrium.Then,this paper studies a supply chain consisting of a supplier with limited capacity and two retailers.Due to the limited capacity of the supplier,the two retailers have a competitive relationship in capacity allocation.When the total order quantity of the retailer exceeds the capacity of the supplier,the supplier will allocate the capacity according to the allocation mechanism agreed beforehand.The article finds that rational retailers have incentives to make over-precision retailers better.The paper also discovers that the over-precision retailer's profit always suffers from the over-precision.