Forecasts and Order Decisions: Reactions to Demand Variability

In a typical supply-chain management setting, making order decisions inherently entails forecasting the uncertain demand for the relevant products. Through this translation of demand forecasting into final order decisions, one of the persistent findings in recent years is the pull-to-centre effect. This effect can be summarized as the tendency of the decision makers to set their order decisions between the mean demand and the normative order quantity. In the current study, we attempt to explore how decision makers will react to demand uncertainty, particularly to changes in variability of the demand and investigate the corresponding pull-to-centre effect. We also try to identify a potential cognitive bias, overprecision, that may prevail in this forecasting and decision process. Findings are discussed and directions for future research are suggested