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A hidden anchor: The influence of service levels on demand forecasts


Fahimnia, Behnam; Arvan, Meysam; Tan, Tarkan; Siemsen, Enno (2023). A hidden anchor: The influence of service levels on demand forecasts. Journal of Operations Management, 69(5):856-871.

Abstract

Demand planning is informed by demand forecasts, service level requirements, replenishment constraints, and revenue projections. “Demand forecasts” differ from “demand plans” in that forecasts only represent the distribution (or the most likely value) of product demand. Motivated by common forecasting practices in industry, our research examines whether forecasters recognize this difference between demand forecasts and demand plans. Based on a lab experiment informed by data from two large FMCG companies, we found that forecasters factor service levels into their demand forecasts, even when they are clearly instructed to predict the most likely demand and incentivized to minimize the forecast error. We establish that this result holds for students and practitioners alike, and show that this behavior is driven by the service level information, and not some other anchor. We use data from a recent industry survey to support the external validity of our key findings.

Abstract

Demand planning is informed by demand forecasts, service level requirements, replenishment constraints, and revenue projections. “Demand forecasts” differ from “demand plans” in that forecasts only represent the distribution (or the most likely value) of product demand. Motivated by common forecasting practices in industry, our research examines whether forecasters recognize this difference between demand forecasts and demand plans. Based on a lab experiment informed by data from two large FMCG companies, we found that forecasters factor service levels into their demand forecasts, even when they are clearly instructed to predict the most likely demand and incentivized to minimize the forecast error. We establish that this result holds for students and practitioners alike, and show that this behavior is driven by the service level information, and not some other anchor. We use data from a recent industry survey to support the external validity of our key findings.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Business Administration
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > Strategy and Management
Social Sciences & Humanities > Management Science and Operations Research
Physical Sciences > Industrial and Manufacturing Engineering
Uncontrolled Keywords:anchor, behavior, forecasting, judgment, service level, sales and operations planning
Scope:Discipline-based scholarship (basic research)
Language:English
Date:1 July 2023
Deposited On:17 Jan 2023 12:14
Last Modified:28 Apr 2024 01:44
Publisher:Wiley
ISSN:1873-1317
OA Status:Green
Free access at:Publisher DOI. An embargo period may apply.
Publisher DOI:https://doi.org/10.1002/joom.1229
Related URLs:https://onlinelibrary.wiley.com/doi/full/10.1002/joom.1229 (Publisher)
Other Identification Number:merlin-id:23106
  • Content: Published Version
  • Language: English
  • Licence: Creative Commons: Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0)