Global supply chains are facing unprecedented inventory shortages due to massive disruptions caused by the Covid-19 pandemic, geopolitical conflicts, trade wars, and extreme weather events. Procurement managers, worried that they may not receive the materials they need, order higher quantities than what their manufacturing or service operations actually need.
Inflating Orders Can Worsen Supply Chain Uncertainty
How firms can fight the temptation.
October 27, 2022
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Summary.
The practice of purchasers inflating orders during volatile or uncertain times has long been a problem. But three approaches can help curb this practice: firms can communicate demand forecasts that include the uncertainties; the parties can engage intermediaries such as an industry trade association to help them negotiate contractual terms that will reduce uncertainties and build trust; and managers can utilize neuropsychology tools to gain deeper understanding of their own subconscious behaviors that adversely influence their decisions.