Human Factor in Forecasting and Behavioral Inventory Decisions: A System Dynamics Perspective

Abstract

Inventory decisions and demand forecasts are at the heart of supply chain management. Effective integration of these two activities is key to organizational success. Despite this, literature haven’t extensively explored the interrelation between judgmental inputs into forecasts and inventory decisions. This paper draws insights by connecting these two vital activities, applying system dynamics theory at a multinational company dealing in the heavy industries sector. Empirical evidence suggests that despite the growth of various statistical and computational advancements in managing inventory and forecasts, practitioners still frequently adjust the final output. The literature outlines that some practitioners are privy to information that might not be exposed to the system/model which are likely to increase supply chain performance when used effectively. The outcome of this research aids in avoiding double-counting of contextual information and improving forecast accuracy, eventually leading to better supply chain performance.