Behavioral regularities of ordering decisions when there is an expedited shipping option

This research project studies how people make ordering decisions in advance of a selling season when they have the chance to expedite more units in case the initial order falls short of demand.

We consider a supplier-buyer channel where the buyer must decide how many units to order from her supplier to satisfy a fraction of her customer demand, i.e., the buyer commits to a service level. She must make her ordering decision before she knows for certain her customer demand. We call this stage 1’s ordering decision. If this ordering decision falls short of the service level, the buyer must expedite from her supplier the units short of the service level. We call this stage 2’s ordering decision. Note that if stage 1’s ordering decision does not fall short of the service level, the channel operates with no second stage.

We tested the normative predictions of this supplier-buyer channel in an incentivized decision-making experiment. This will allow us to better understand ordering decisions under this channel structure, which in turn will allow us to provide insight into when and how managers can positively influence ordering decisions by leveraging service levels and expediting costs.

Details about the experiment and the results can be found in the project’s repo.