Bias in Supply Management Decisions

… and what to do about it.

Decisions within a company are not made on pure rational grounds. Assuming that there is the will to make a rational decision, nevertheless limits in information gathering, computing capabilities and memory lead to irrational conclusions (bounded rationality).

So the goal must be to enhance rational decision making and for this end Kaufmann et al. (2009) developed a framework to combat irrationality.

Methodology

The authors use case studies to analyze companies behavior in decision making. In this case they interviewed several executives from 15 companies primarily from the automotive and mechanical engineering industries.

Framework

The other cause for biases in decision making (beside bounded rationality) is uncertainty of the environment. In this context it can be described as simple or complex (the number of factors taken into account) and static or dynamic (change over time).

Overall there are three strategies to reduce bias in decision making:

• Expand the decision makers bound of rationality

• This can be achieve by creating awareness, decomposing the decision task and facilitating rational evaluation

• Reduce dynamic of decision-making environment

• Reduce complexity of decision-making environment

Results

The case study produced several strategies which can be used to debias decision making within the above mentioned categories (extract).

• Expand bound of rationality

• Using cross-functional decision making

• Use IT systems to support supplier performance assessment

• Training of supply management evaluation and decision making skills

• Reduce dynamism

• Financial hedging

• Stocking of sourced items

• Establish presence at supplier site

• Reduce complexity

• Combine single sourcing items to modules

• Deproliferating complex sourcing items

• Standardizing sourcing items

Conclusion

The presentation of the article is very clean and can be easily understood. Furthermore, due to the business oriented research method, is should be quite easy to port these strategies back to practice and include them in a “decision making improvement initiative”.