Effective Goal Framing for Managers Using Inventory Management Systems

Abstract

While automated inventory management systems are prevalent, managers are known to use judgmental adjustment when they have access to system recommendations. However, these adjustments might be subject to human decision biases in the form of framing effects contingent on managers’ profit maximizing or cost minimizing goals. We conduct the first investigation of goal framing effects that influence judgmental adjustment of system recommended order quantities. Our laboratory experiment uses a 4 (Goal framing: Positive, Negative, Neutral, Control)×1 design that manipulates the goal frame. Except for the control group, decision makers in other treatments had access to a system recommendation. The participants in all treatments were asked to determine the optimum order quantity in a high margin newsvendor task. We find that the decision makers’ trust in the system recommendation determines the extent to which they make adjustments to the system recommendation. Most importantly our results reveal a significant goal framing effect: participants in the positive/negative frame condition ordered less/more than the system recommendation. This implies when organizations communicate goals and set targets for their decision makers, those goals should align with a cost minimization strategy to improve performance.