The lead time updating trap: Analyzing human behavior in capacitated supply chains

Abstract

We analyze the lead time syndrome (LTS), which describes a positive feedback loop between lead time updating and increasing order quantities. While previous studies have focused on theoretical analysis and anecdotal evidence, we examine the impact of human decision making with the help of controlled laboratory studies using a novel experimental design of a simple two tier supply chain. We show that the theoretically postulated phenomenon of the LTS can be reproduced in the lab including human decision makers. We find that the dynamic (load dependent) lead time in the supply chain serves as coordination mechanism among retailers, i.e. experimental participants, but that this mechanism can be distorted by less reliable lead times. Comparing the experimental results to an optimization model in a rolling horizon setting, we further argue that human behavior initiates the vicious cycle of the LTS in our experiments. Finally, we find individual-level evidence for behavioral decision-making, in particular hedging behavior, in our experiment, due to various forms of uncertainty. We discuss the implications of these results in the light of supply chain and production planning systems.

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