The Effect of Social Preferences on Sales and Operations Planning

Abstract

Sales and operations planning processes are used to align production quantities and customer demand. Two key activities of these processes are demand planning and production planning, which are often assigned to individuals in different departments. In “The Effect of Social Preferences on Sales and Operations Planning,” Papier and Thonemann analyze the role of social preferences (altruism, inequality aversion, and competitive pressure) and monetary incentives in motivating demand planners to invest effort in forecasting that benefits the production planners. Their results indicate that social preferences can be used to incentivize demand planners to invest effort and that this effect is anticipated by production planners. The resulting more accurate demand forecasts and adapted production quantities result in higher company profit. They also provide an optimization model for optimally allocating investments to financial incentives and social preference building.

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