Exploring the contribution of individual differences and planning policy parameters to demand planning performance.

Demand planning (DP) is important for business performance. DP depends both on managers and on supporting systems. Managers are known to increase uncertainty by systematically overriding the systems and making unnecessary judgemental adjustments. This is a behavioural problem. Systems are assumed to be represented by different policies and individual differences by measurable traits and characteristics. The contribution of individual differences and policy parameters to DP performance is not clear. A framework is proposed based on the cumulative prospect theory (CPT) and myopic loss aversion (MLA). Methodology of decision making experiment based on the newsvendor is used. Individual differences are collected using previously validated psychometric scales and demographic questions. The sample (N=339) includes three main groups: professional planners (N=84), naïve students (N=166), logistics and supply chain management (L&SCM) students (N=56). The MLA hypothesis is supported. Longer planning horizons (less frequent decisions) outperforms short planning horizons. Regarding individual differences, only experience/knowledge and naïve interventionism are significant predictors of DP performance. L&SCM students with theoretical knowledge but without practical experience perform the best. No significant difference in performance is found between professional planners and naïve students. Naïve interventionism (plan instability) contributes negatively to DP performance. Personality (Big Five), impulsiveness, propensity to plan, decision-making style or demographics (e.g. age, sex, and years of experience or managerial level) are not significant for DP performance. The view that there is a ‘right’ mind-set (personality) to be a good planner is challenged. DP policy can offset individual differences. A MLA informed policy can reduce uncertainty introduced by behaviour. System restrictiveness (binding policy for long commitment) outperforms decisional guidance (non-binding policy for optional commitment). This is one of the first applications of CPT and MLA to DP decisions