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An exploratory study of risk aversion in supply chain dynamics via human experiment and agent-based simulation

Author

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  • Salvatore Cannella
  • Carmela Di Mauro
  • Roberto Dominguez
  • Alessandro Ancarani
  • Florian Schupp
Abstract
The literature on the impact of risk aversion on supply chains (SCs) is relatively limited and, in particular, there is a dearth of theory and a lack of empirical evidence concerning: (1) the impact of individual risk aversion on the generation and dynamics of the order policy (e.g. order patterns and inventory holding costs); (2) the impact of several combinations of risk-averse members in each stage of a multi-echelon SC. We explore these gaps through a multi-method approach (i.e. human experiments and agent-based simulation), thus using both empirical and simulated data. Specifically, based on results from a human experiment, we develop the conjecture that risk aversion is positively correlated to the desired stock level and consequently to the safety stock factor of inventory order policies. Building on this finding, we perform a simulation study to infer the impact of individual risk aversion in a multi-echelon SC. Results show that alternative compositions of the SC in terms of risk aversion levels of the echelons significantly influence inventory holdings and SC dynamics. The study implies that a company facing problems of high inventory days-on-hand should favour low-risk aversion managers, as instrumental to lowering stock and improving net working capital.

Suggested Citation

  • Salvatore Cannella & Carmela Di Mauro & Roberto Dominguez & Alessandro Ancarani & Florian Schupp, 2019. "An exploratory study of risk aversion in supply chain dynamics via human experiment and agent-based simulation," International Journal of Production Research, Taylor & Francis Journals, vol. 57(4), pages 985-999, February.
    • Handle: RePEc:taf:tprsxx:v:57:y:2019:i:4:p:985-999
    DOI: 10.1080/00207543.2018.1497817
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    Cited by:

    1. Yang, Y. & Lin, J. & Liu, G. & Zhou, L., 2021. "The behavioural causes of bullwhip effect in supply chains: A systematic literature review," International Journal of Production Economics, Elsevier, vol. 236(C).
    2. Mohsen Ahmadian & Ehsan Elahi & Roger Blake, 2022. "The Behavioral Effects of Competition Intensity and Cost Structure on Competing Suppliers: An Experimental Study in the Context of the USA," International Journal of Global Business and Competitiveness, Springer, vol. 17(2), pages 117-129, December.
    3. Nguyen, Duy Tan & Adulyasak, Yossiri & Landry, Sylvain, 2021. "Research manuscript: The Bullwhip Effect in rule-based supply chain planning systems–A case-based simulation at a hard goods retailer," Omega, Elsevier, vol. 98(C).
    4. Lin, Junyi & Zhou, Li & Spiegler, Virginia L.M. & Naim, Mohamed M. & Syntetos, Aris, 2022. "Push or Pull? The impact of ordering policy choice on the dynamics of a hybrid closed-loop supply chain," European Journal of Operational Research, Elsevier, vol. 300(1), pages 282-295.
    5. Roberto Dominguez & Salvatore Cannella, 2020. "Insights on Multi-Agent Systems Applications for Supply Chain Management," Sustainability, MDPI, vol. 12(5), pages 1-13, March.

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