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Existence and extent of operations and supply management departmental thought worlds: an empirical study.

If (...) we accept the proposition that both the knowledge and the computational power of the decision maker are severely limited, then we must distinguish between the real world and the actor's perception of it and reasoning about it. (Simon, 1986, p. S211)


Mainstream analytical research literature in operations and supply chain management (OSM) provides an abundance of normative solutions to optimize supply chain performance and drive out inefficiencies (e.g., Cachon, 2003; Simchi-Levi, Wu & Shen, 2004). A central assumption implicit in this literature is that managers understand and equally appreciate the cost elements involved in the supply chain and thereby the financial outcomes of their decisions can be known across the organization (e.g., Cachon & Lariviere, 2005).

The above assumption, however, is questionable. As such, there is no commensurate research on how or whether managers estimate cost parameters and whether they estimate these parameters uniformly. In fact, the majority of OSM literature "typically treats inventory costs as known [and] researchers use this and other relevant information to construct optimization models and arrive at optimal inventory decisions" (Eroglu & Hofer, 2011, p. 228). This assumption is also increasingly coming under question by empirical scholars. For example, Waller and Fawcett (2011, p. 212) exhort that "additional research is needed to understand

phenomena associated with how people utilize costs in logistics decisions, why some costs are measured with great accuracy and why others are completely ignored, how to get managers to utilize cost information in a way that leads to better decisions, and how to get managers to seek to measure costs that might be ignored."

Indeed, there is a good reason why we must investigate this aspect of OSM. If managers within an organization perceive their costs differently, it is conceivable that when they optimize their cost-centers (or use any other OSM tool) they will accordingly arrive at different optimal answers. This would result in supply chain inefficiencies, regardless of how good the OSM systems and tools might be. Our study investigates the differences in perceptions, i.e. "departmental thought worlds" (DTW) (Deshpande & Webster, 1989; Dougherty, 1992; Niranjan & Rao, 2012), of managers across the organization, with reference to various costs affecting their supply chain. We argue that an understanding of this is essential because uniformity of underlying perceptions is an implicit, but rarely tested, assumption in the OSM literature. While this approach has been taken before in the literatures of marketing (Frankwick, Ward, Hutt & Reingen, 1994; Homburg & Jensen, 2007), strategy making and new product development (Dougherty, 1992; Griffin & Hauser, 1996; Maltz, 1997), we study this question uniquely within the OSM context. We choose to investigate the questions "Do managers know the cost parameters affecting the supply chain? If so, is this perception/knowledge uniform across departments? If not, what causes these differences?"

These are important questions to consider since they get to the heart of an assumption that mainstream OSM literature has taken for granted for a long time now. If it emerges that there is uniformity among managers with respect to their cost perceptions, then it would be validation of an assumption that has largely gone unchallenged in a majority of the OSM literature (Eroglu & Hofer, 2011). On the other hand, if it emerges that there is indeed non-uniformity in this area as has been suggested recently (e.g., Waller & Fawcett, 2011), it would open a new avenue of future research where scholars would have to consider this additional input when building prescriptive or descriptive models of supply chains.


Differences in departmental world views is one of the well-established problems facing organizations (Dearborn & Simon, 1958; Shapiro, 1977). An extreme example of how roles shape world-views or perceptions is the Stanford Prison Experiment (Haney, Banks & Zimbardo, 1973). In this famous experiment, the subjects were assigned roles; some as prisoners and others as guards, and they were placed in a simulated prison setting on the Stanford University campus. Their new roles heavily influenced the subjects' perceptions, and the subjects took their roles so seriously that within a week of the experiment's commencement they started violently attacking each other, as if they were real prisoners and guards. Arguably, such influence of roles would be stronger in the real world because the stakes are higher than in an academic setting.

Scholars from the areas of marketing (Deshpande & Webster, 1989; Homburg & Jensen, 2007), strategy and new product development (Dougherty, 1992; Frankwick et al., 1994; Griffin & Hauser, 1996; Maltz, 1997) have recognized that managers think and perceive their environment differently due to the existence of departmental thought worlds (DTW) (Deshpande & Webster, 1989). Ellinger, Keller and Hansen (2006), for example, identified that marketing and logistics managers (among others) tend to have strikingly different views about each other's function. Other researchers have alluded to different mindsets or thinking styles (Lapide, 2007) and the importance of having cross-functional and inter-departmental understanding of key supply chain issues (Lambert, Garcfa-Dastugue & Croxton, 2005; Tatikonda & Montoya-Weiss, 2001).

Within the OSM field for example, single-echelon inventory management is an important problem. The preponderant solution is to build normative models capturing the tradeoff between keeping too much stock versus keeping too little (e.g., Shih, 1980). For this, one typically assumes the cost parameters (e.g., holding cost, backorder cost, profit margin) as given and arrives at optimal solutions. An extension of this problem is when multiple parties are involved in the midst of incentive misalignments and bounded rationality, such as in multi-echelon supply chains (e.g., Rudi, Kapur & Pyke, 2001). Irrespective of the type of inventory issue being considered, however, a majority of the research addressing these kinds of problems (Forrester, 1961; Kouvelis, Chambers & Wang, 2006; Simchi-Levi et al., 2004; Tayur, Ganeshan & Magazine, 1999) typically assumes cost parameters as given.

The advantage of assuming away the cost parameters (e.g., typically, denoting holding cost as h and backorder cost as b) is that the research would be highly generalizable. However, unless one sees solutions borne out of real-life parameters, increasingly sophisticated normative models do not by themselves offer much useful insight to managers. An emerging approach--behavioral operations management--explicitly studies human behavior in OSM contexts primarily through empirical methods and redresses some of the limitations of analytical methods (e.g., Bendoly, Donohue & Schultz, 2006; Gino & Pisano, 2008; Knemeyer & Naylor, 2011; Tokar, 2010). Following this latter approach, we explicate a limitation inherent to extant normative OSM research: the ubiquitous assumption that managers equally identify the dimensions of the problem and cost parameters of their supply chains.


Given the multiple facets to our research questions, from an operational standpoint we break the questions into two sub-objectives. The first objective was to inductively develop the construct OSM-DTW and its dimensions--i.e., how and why. The second is to test the existence of DTW and quantify it in a different context--i.e., how much, and uncover any possible discernible patterns in it. Studies 1 and 2 address these sub-objectives, respectively.

When the human being is part of the OSM phenomenon to be studied, it is useful to adopt constructivist approaches and qualitative research (Autry & Flint, 2010). On a continuum, we would place the core ontological assumptions of Study 1, which aims to build a new construct--OSM DTW--as "reality as a contextual field of information," and "man as information processor" (Morgan & Smircich, 1980). Study 2 builds on Study 1 and tests and quantifies OSM DTW with a more positivist approach (reality as a concrete structure and human beings as responding mechanisms (Morgan & Smircich, 1980)). The overall research design integrating the two studies can be viewed as one of replication over two cases, which can yield more complete findings (Yin, 2009) (Table 1).

Despite the paradigmatic differences, some common techniques were used, such as starting research with "grand tour" descriptive observations (Spradley, 1979; Whitehead, 2005) in which everything was generally observed in the setting before the specifics of the study began to emerge. As noted by Pagell and Wu (2009, p. 43), "The use of multiple respondents and multiple types of data mitigates the biases of a single respondent." Accordingly, at least one of the authors (usually two) and one trained research assistant participated in each of our field research visits. We carried out the interviews at the respondents' workplace and audio-recorded them. Although interviews merely elicit perceptions or memories that may not necessarily match the "true" state, they are likely "representative of the underlying [memory] structure with respect to both content and organization" (Lynch & Thomas, 1982; p. 24), and may well influence future behavior because people often make decisions on the basis of how they remember an experience versus how it actually occurred (Flint, Woodruff & Gardial, 2002, p. 104). We took field notes to record any interesting reactions, response spontaneity, and other subtle behavior observed during the actual interviews as well as during informal interactions over meals and refreshments.

After each interview, we transcribed the recordings and compared, discussed, and edited the individual field notes within the research team. The transcripts were then studied thoroughly before moving to the next interview. Often individual interviews provided new insights that helped us to revise the interview guide, apart from sensitizing us to future interviews. The data gathered through multiple sources such as interviews, informal discussions, field notes, on-site observations, and archive studies ensured data triangulation, helped to mitigate the researchers' biases, and increased the reliability and validity of our study (Pagell & Wu, 2009; Yin, 2009).


With annual turnover of USD $150 million, Radiance Industries is India's leading manufacturer of oleochemicals and sells more than one hundred chemicals, edible oils, and fats to over 60 countries. Its products are broadly categorized into fatty alcohols, fatty acids, surfactants, and glycerin. The market dynamics across the product range vary widely, with stiff competition in some markets and near monopoly in others. The company currently operates two plants in Western India: Wadia in Gujarat, and Sukhroli in Mumbai, India's financial capital; a third plant is also planned. We chose the Wadia plant, a modern, integrated-manufacturing facility, for our study.

The first step toward building the OSM DTW construct was to identify a focal OSM problem to base our study on. We carried out exploratory plant visits and initial discussions with the top management team (our key contacts, the Vice President of Manufacturing, who had the breadth of knowledge, and the Head of Human Resources, who had access to all key personnel, helped us in problem identification), with the goal that the problem had to be of critical importance to the company, and sufficiently broad and complex to bring out the DTW differences from across the organization, and one that potential respondents could readily relate to. Given the capacitated supply chain environment, timely supplies are of critical importance, and "breakdown" came out as one of the pressing issues for the company. Breakdown, as used in the company parlance, refers to delivery delays or failure due to any cause, such as lack of production capacity, raw material unavailability, machine failure, mechanical or technical issues related to equipment and processes, byproduct management, issues with customer specifications, and transport vehicle availability. The frequency of technical breakdowns is about once per month. Every machine-related breakdown lasts a minimum of 1 day and can go as long as 7 days.

While these were generic problems in this industry, of particular interest was the product Soporic Acid, a fractionated fatty acid. Soporic Acid is of very high value and arguably the most important product for the company. For this reason, the senior and middle level management across all of the departments were familiar with it, more so than with any other product. This was the key reason to focus our study on Soporic Acid.

Soporic Acid is frequently produced on the basis of forward buying contracts. Spot selling allows higher margins to be charged but also makes production planning more challenging. With limited capacity and almost no inventory buffers, any breakdown or supply issues result in non-fulfillment of demand, dip in the market share, loss of goodwill, and sometimes even incur penalties. The total installed capacity for this product is 1,500 tons per month (1,100 tons from Wadia and 400 tons from Sukhroli). The raw material is rapeseed oil. A moderately profitable byproduct "Lubolic--30" is also produced. Divine Organics, located in the suburbs of Mumbai, is the biggest customer for Soporic Acid, with a monthly requirement of about 1,200-1,300 tons. The other major customer is AKZO Nobel, whose operations span the world. The final products have application in the food and plastic industries.

Once the focal problem and product were identified, the next step was to choose the respondents. After consulting the Head of Human Resources and the Vice President of Manufacturing, we chose respondents from the marketing, logistics, and manufacturing functions who were knowledgeable about the problem and product. All of these business functions are considered to be part of supply chain management in the literature and practice (Cooper, Lambert & Pagh, 1997). The profile of each interviewee is presented in Table 2.

Each formal interview lasted between 45 and 90 minutes. A middle manager was tasked with facilitating the interviews as a silent observer and served as an excellent sounding board for corroborating our understanding. Once all the interviews had been completed, we began interpreting the interviews and comparing them across the hierarchy, as well as across the different departments. Whenever we encountered inconsistencies among the data sources or noticed critical issues, we obtained the respondents' clarifications through follow-up emails and a second round of telephonic interviews. Three specific goals guided the data analysis: (1) to identify the different dimensions of the DTW construct, (2) to categorize the responses according to the dimensions and interpret the contextual meaning, and (3) to explain the categorized data and their interpretations in light of DTW.

Through open coding we could categorize all of the managers' breakdown-related perceptions into five dimensions: Capacity-, Quality-, Availability-, Productivity-, and Effectiveness-related differences. Capacity relates to production capacity and inventory status, and we grouped all of the relevant perceived differences first to understand the response pattern, then to link them to the respondents' experience and managerial responsibilities, and finally, to interpret the responses and explain the similarities and dissimilarities in light of DTW, both at the individual and department level. For example, as illustrated in Table 3, when we asked the Deputy General Manager (DGM) of Production about the capacity issues and demand-supply mismatch, he was confident that capacity and supply were enough to match the demand. Even the Manager of Production had similar views.

When we asked the Associate Vice President (AVP) of Marketing the same question, he was quite concerned that inadequate capacity would lead to a high probability of a demand/supply gap. In addition, the DGM of Production also clarified that there were no machine shutdowns leading to stoppage, while the AVP of Marketing perceived such shutdowns to be one significant reason behind capacity issues. The differences in their perceptions were shaped by their past experiences, varying responsibilities, intra-departmental exposure and inter-department interactions. Table 3 provides details of the responses and our interpretations explaining DTW differences related to Capacity.

In the same way, we grouped all responses related to raw material quality, final product quality, and issues with meeting customer's specification, under the category Quality. When asked about the quality of the raw materials and products produced and what they do with poor quality products, the production managers seemed satisfied with the quality of the raw materials received. They emphasized that only quality products were produced and in cases of any deviation, the products are blended with the higher quality products. Low-quality products are never sold. Marketing managers however were skeptical about the quality, both of raw materials and final products and claimed that the low quality products are sold to external customers. The underlying interpretation is illustrated in Table 4. Similar differences in perceptions related to Availability (which reflects raw material and transport vehicle availability) and Productivity (which reflects machine utilization, lead time, byproduct utilization, and equipment maintenance requirements) were observed in light of DTW as illustrated and interpreted in Tables 5 and 6, respectively. Effectiveness is the overall understanding of customer satisfaction criteria, penalty and detention (delay) cost, and influence of workplace layout. Organized along these themes, the summary responses and why those responses might be occurring are presented in Tables 3-6. Their individual cost perceptions are summarized in Table 7.

Key observations from the analysis follow. There are several costs that are interpreted by the managers in different departments in different ways. As discussed above, quality as perceived by the marketing team varies from the quality perceptions of the production team. To Production, quality ideally means defect-free manufacturing whereas quality perceived by Marketing is fulfilling individual customers' specifications. Detention costs are the cost incurred out of delay in shipping (including demurrage) and are interpreted by the production people as very low, associating only direct costs due to the delay. However, Marketing sees this as a high cost because it also affects the trust and confidence of the customers. In addition, they worry that the customers might split the total contract amount between them and a competing firm, resulting in loss of business; this has a high indirect cost impact. The transport vehicle availability is a critical issue in a hand-to-mouth supply chain like that of Soporic Acid. A single day's delay due to unavailability of vehicles might have a low relevance to the production unit and they can still rate it as an efficient system, yet this is viewed as a crisis and an inefficient system by Marketing. These differences are along expected lines, because they seem to be linked to their daily work responsibilities.

Apart from inter-department differences, the study also indicated a manager's past experience shapes his views and influences his decisions and priorities in his current role, as in the case of the AVP of Manufacturing, whose long previous experience in alcohol production tended to carry forward to the acids division (see Table 3). Such biases can to lead to poor decisions.

The current environment also has a large influence on perceptions. When a manager joins an organization, he tries to absorb the surrounding knowledge. With time he develops personal relationships with his surroundings and unknowingly tends to develop biases based on his understanding and the influence of others surrounding him. These biases shape his perceptions and affect his decision abilities and priorities. In this study, the logistics manager who worked within the same premises as the production managers reflected similar perceptions.

A production manager is primarily concerned about the total production, which is directly associated with the raw material availability. We may interpret part of his understanding as absolute truth, where he is directly involved in the process and acquires knowledge through observations and experiences. The other part of his understanding is primarily shaped by the influence of the environment he is in and not through his personal experiences and observations. These perceptions that he develops from his surroundings may not be absolute truth, and yet he believes in all of it as part of the reality. This possible mismatch between reality and illusion causes biases and is reflected in his decision priorities. A production manager is expected to know about production capability, plant efficiency, and raw material requirements and availability. However, he might not have firsthand information on customer satisfaction and may perceive its level and significance from the indicators in the limited scope of his department and perceptions of his colleagues. He might assume high customer satisfaction based on his production efficiency and quality consistency.

Similarly, a marketing manager belongs to an environment where customer satisfaction is of utmost concern. He estimates and experiences the severity of the problem when a customer rejects an order, and his decisions reflect his priorities on meeting customers' quality requirements. He associates business profitability with his performance in selling. Predicting demand and balancing quality supply with timely delivery is a challenge to him, and this makes him more critical of the performance of the other departments down the value chain. His perceptions tend to be shaped by his expectations and general estimations. These interpretations thus explain how and why marketing personnel perceive transport availability, various costs involved in the supply chain, and product quality differently than their production and logistics counterparts.

Departmental thought worlds in this context may have three possible impacts. First, the information/ understanding of the processes that each department is carrying is heavily dependent on the environment in which the manager operates. Different departments have certain perceptions engrained within that pass on person-to-person over time through any of several possible mechanisms (Nonaka & Krogh, 2009). This prevents accurate evaluation of the entire business process, which is critical for SCM. Second, managers are convinced of the high performance of their own departments and attribute failures to other departments. For example, Marketing perceived production inefficiency to be a major concern even when production-related delays were insignificant. This is not necessarily capricious behavior; it was simply their perception. Third, difficulties arise when managers, bound by their DTW, take actions to overcome the perceived difficulties. For example, a marketing manager who perceives inefficiency in the production department might tend to over-order to minimize production uncertainty risk; this mechanism has recently been referred to as coordination stock (Croson, Donohue, Katok & Sterman, 2014). For the same reasons, he might well overestimate transport requirements, or quality levels, or Production may overestimate raw material requirements. All of these result in inefficiencies (for example, inventory pile-up in case the inflated orders are fulfilled) and links DTW to its financial impact.

This first study developed the OSM DTW construct and established its presence in rich contextual detail. The study did not, however, attempt to quantify it. Apart from quantification of DTW, by case replication logic it might also seem worthwhile simply to study DTW in a different context and in a different culture and organizational setting. With these objectives in mind, we move to Study 2.


In accordance with the second objective, which is to test and measure the existence of OSM DTW in an independent context, we adopt a positivist approach. The case study chosen was Maader, Iceland, a world-leading food processing industry equipment manufacturer. It was chosen on the premise that we (the research team) ought to know the "real world" or "true" parameters (to the extent possible, commensurate with the chosen research methodology) of a key OSM problem facing the managers of the organization. This would allow us to compare the actors' DTW across departments and then compare it the "real world." Maader operates 15 subsidiary companies spread across Australia, Europe, and North America and had annual revenue of 265 million Euros. Our study focused on Maader's Reykjavik, Iceland plant.

We were previously involved in a project aimed at advising Maader on their logistics strategy--whether to move from ocean to predominantly airfreight. The recommendations were borne out of a detailed analysis of total cost of ownership (TOO) for purchased parts. Thus, we knew the "real world," i.e., actual cost parameters. This, and the fact that Maader was a B2B industrial manufacturer like in Study 1, led us to choose this case study. The study involved participant observation as a data collection technique (Platt, 1992) up to this stage, while developing the intricacies of the TCO model (the findings of which were shared with the company executives only after concluding Study 2, thus protecting its validity).

The key business processes in the company are: product development (from a concept to a new product design), manufacturing (from receipt of production order to shipment), marketing and sales (from marketing to acceptance at the customer site), and service (from customer service request to sign-off). Production is "engineer-to-order." It broadly follows this sequence: sales managers, armed with some prior knowledge of product features and delivery capabilities, initiate the sales call and create a contract with customers with information regarding specifications, price, and delivery time. The design team then prepares the design and the bill of materials (BOM) and delivers them to the purchase and manufacturing teams for further action. Delivery dates for all the components are then set to meet the production schedule. The inventory cell receives incoming goods and secures delivery of material to the support centers and production cells. Once the final product is assembled, it is tested and shipped to the customer. Sales expects that the whole process be carried out within the initial deadline. This means late delivery from any of the steps will affect the time available for the subsequent process.

In this study, we included middle/senior managers from all departments who would be expected to be knowledgeable about the supply chain. This resulted in a pool of seven managers. Armed with information of the "real world" as detailed previously, at this stage we administered a structured interview to uncover the managers' reasoning behind their choices about their operational environment. The questions aimed to find out how different groups perceive inventory-related cost. The questions were asked with respect to Sensor Lamp, which is a critical component for Maader, and which all respondents were expected to be familiar with. All interviews were conducted in English or Icelandic, with the interviewer being a native Icelandic-speaker and a fluent English-speaker. Each interview lasted between 30 and 60 min and was in addition to extensive informal interactions during the preceding months. The structured interviews (2) were audio-recorded and transcribed to allow careful analysis by the whole research team. Data triangulation was amply achieved because the qualitative data from structured interviews complemented months of informal interviews, process mapping, and participant observation carried out by a research assistant who was interning there.

We first report results of the interview with a logistics manager (denoted as Ml) as an illustration. Similar results are available for all seven managers, although for the sake of brevity we are not including them here and present only the overall findings.

M1 heads the shipping department that has two other employees and is responsible for handling inbound and outbound transportation. As might be expected, she immediately identified the transportation cost, documentation, and all of the costs that are directly related to her. She also realized that there are other costs such as inventory holding cost. She rated the purchasing price along with supplier selection as the most important cost-drivers, covering 90 percent of the costs. She rated holding cost as being more important than transportation cost even though her main responsibility is transportation cost (see Table 8).

We then asked M1 to identify cost-drivers in different departments in order to identify opportunities for lowering costs. M1 identified only the purchasing department as adding costs through their employees. Inventory holding cost was of some concern to her, and then in particular the cost of warehousing and how this product needs special handling. M1 also preferred buying the Sensor Lamp in small lots: "I consider it to be more important to purchase the Sensor Lamp in a batch of 3-5." It is obvious that M1 had some knowledge of the importance of inventory holding costs, but it might be biased due to the knowledge of the high value of the product compared to its transportation cost. Her knowledge of the high value of the product led her to place emphasis on the high inventory holding rather than to focus on transportation costs.

Next, we asked M1 to estimate TCO of the product. E informed her that TCO includes the purchase price, transportation cost, inventory holding cost, and cost of ordering the product and asked her to rate the extent to which all of these cost-drivers contribute to the TCO. True to her initial estimate of the value of the purchase price, she estimated it to constitute 90 percent of the TCO while she considered transportation cost to be only 5 percent, inventory holding cost to be 3 percent, and purchasing overhead at 2 percent (see Table 9). This comes as no surprise since her main concern during regular work was with the transportation cost, and she realized how low the transportation cost is compared to the purchase price of the product.

Similar interviews were carried out with the other six managers. Table 10 summarizes the cost-drivers identified by various managers, and their importance ratings. The numbers in brackets indicate the number of respondents who identified the items.

The results show that inventory holding cost was a relevant cost-driver for all managers, but the level of importance was perceived quite differently. Another noticeable cost-driver was transportation cost. It was mentioned in six out of seven interviews, but in almost all cases they were considered to be of low importance and low value. Supplier relationship was also a popular cost concern and all managers considered supplier relationship to be very important in lowering the total cost of manufacturing. This seems to be the prevalent idea among all managers: most of the problems can be traced to a bad supplier or a wrong supplier delivery. Next, the respondents were asked to assign a few cost-drivers and identify those that could be improved in order to lower the TCO. As Table 11 shows, there are many cost-drivers that can and need to be improved in order to lower TCO.

There seems to be a common understanding of which cost-drivers within the company could be improved regarding supplier relationship, freight cost, carrying cost and planning. These are all easy-to-identify cost-drivers, some of which have high leverage on improvement opportunity. However, as Table 9 shows, a mere acknowledgment by managers of the existence of certain cost-drivers is not an indication that they all agree on the relative importance of these cost-drivers; they can disagree substantially!

When they were asked if they consider transportation costs or inventory holding cost more important, the answers were always toward inventory holding cost. But two respondents said that the inventory holding cost on a Sensor Lamp was very little due to high turnover rate on the specific product.

There seems to be an overall concern from the managers on the high inventory holding cost at Maader. This concern is reflected in both component stockouts and lack of cash flow coming from high investments due to high inventory value. Most of them agree that increasing the purchasing turnover rate by increasing their DHL shipping would result in lower inventory cost and almost all of them consider holding cost higher than transportation cost.

The managers were asked to estimate TCO comprised of four cost-drivers: product price, purchasing, transportation, and inventory holding cost. Table 9 reveals the general perception among respondents that the product price is by far the highest of the cost components, which is consistent with the actual figures we (the research team) had calculated. Estimates of transportation cost are rather similar, with all responses lying in the low range of 3-7.5 percent. What is more interesting is that the managers have quite a different perception of the inventory holding cost, ranging from 3 percent to 35 percent. The standard deviation at 13.4 can be considered very high, which shows how the perception of inventory holding cost varies a lot between managers. These results support the insight from Table 10.

The results indicate that the inventory manager and the transportation manager perceived their costs differently. The transportation manager perceived the inventory holding cost to be less important and of less value than did the inventory manager. They both were still very concerned that the inventory turnover rate should be higher than today, and they were both aware of how they would proceed in order to increase the turnover rate. Both of them mentioned that in order to reach the goal of increasing the turnover rate they need to make sure that the supplier relationships are strong and that they can support such change. This is in line with current OSM literature, which argues the need for improved supplier relationships in order to enhance overall supply chain efficiency and reduce associated costs (Lambert, 2004).

On the basis of these results, we can conclude that managers with different functional responsibilities perceive costs differently in the organization. Managers who were closer to the customer perceived inventory holding cost to be less relevant to the TCO, while managers who were closer to the suppliers perceived the cost to be much higher, plausibly because they had a more accurate image of the inventory holding cost. Interestingly, all of the managers had rated different cost-drivers the most important (Table 10). From this, it can be argued that ceteris-paribus, organizational roles influence perception of reality systematically.

We would expect the financial manager's response to be more balanced (i.e., not tilted toward either the customer-centric metrics or the supplies/supplier-centric factors), but it appears that he was quite concerned about the inventory value, and he considered inventory management of high importance. A possible explanation for this is that investment cost was directly related to inventory holding cost, whereas customer-centric matters (e.g., delayed deliveries to customers) would translate into financial figures only after a long delay. Such behavior is consistent with salience/immediacy bias (Camerer & Loewenstein, 2003).

The differences in DTW, operationalized through cost-perceptions in this study, can be summarized as follows. All managers responded similarly that increasing turnover rate would decrease backorders but this would work only if the suppliers were up to the task and delivered as promised. Most of them also considered maintaining strong supplier relationships as the best way to decrease backorders. Almost none of them considered increasing inventory levels to be a good way to reduce backorders, and almost everyone thought that the focus should instead be on improved supplier relationships first and foremost, which would in turn facilitate increasing frequency of shipments. Top management considered manufacturing efficiency to be of very high importance. Lack of items and consequent production disruptions were attributed to lack of planning and coordination with suppliers.

In summary, the results show that managers within the same organization can perceive the costs drastically differently. Even when everyone verbally agreed that inventory holding cost is an important cost-driver to Maader's operations, differences in their true perceptions manifested when we asked them to rank or quantify them.


Analytical OSM literature pays scant attention to how managers perceive problems in their supply chain or their cost parameters. It simply assumes managers know these things. Is this premise tenable in the real world? Simon (1986), who introduced the notion of bounded rationality, argues it is not. Today most researchers would agree with him that managers have a limited view about their world, and the real world is simply too complex for managers to assimilate in its entirety (Simon, 1986; Sterman, 2000). That being the case, the advanced model-based solutions in mainstream research literature would only be relevant to the extent that the assumption that cost parameters are known uniformly organization-wide was correct. In this research, through two independent studies featuring different problems (breakdowns and TCO), we have shown that managers differ significantly in their OSM DTW. From this, we recommend that analytical OSM scholars explicitly factor in the managerial perception of problem parameters instead of relying on assumed values.

Study 1 develops the OSM DTW construct and demonstrates a methodology to operationalize the construct. This may help future researchers by pointing out how and where to start identifying and measuring DTW in their chosen organizations. In brief, the methodology we adopted in Study 1 (and Study 2) was to identify an important problem facing the organization. The problem must be such that all major managers would have thought about it at length, so that they are in a position to give informed, if not instant responses. The problem must then be broken down into its dimensions. A good starting point would be the company top management, who would frequently be involved in permitting access to the company. By treating them as research partners (as we did), one is likely to get a good overview of the problem context.

It may be useful to position our study within the behavioral operations body of knowledge explicitly, to allow for easier comparison with prior literature. In the Intentions-Actions-Reactions framework (Bendoly et al., 2006), it is noted, "in inventory management, a common objective is to minimize the sum of expected holding and stockout costs [an intention]. In reality, the decision maker may not evenly weigh the cost of holding inventory with the cost of stockouts. For example, he may weigh stockout costs less since these are more difficult to track, or he may weigh holding cost less since this it less visible to his colleagues in sales" (Bendoly et al., 2006, p. 740). Even worse, different managers may weigh these costs differently depending on their current organizational roles. It is clear that the perceptual differences found in the present study fall within the Intentions category; our contribution is the OSM DTW construct, which suggests that the "common" objective may itself vary across individual managers/departments, and even if they converge on the objective function, the parameter values may differ across departments leading to divergent solutions. Within the intentional versus unintentional biases framework (Oliva & Watson, 2009), the perceptual differences fall under unintentional biases, since the managers truly perceived reality differently.

From a managerial standpoint, our results suggest that first and foremost, it is important to recognize the existence of DTW and mitigate it. If left to itself, it can lead to undesirable outcomes such as the development of functional "silos," which means a lack of appreciation for and integration between various functional areas (Cooper et al., 1997; Navarro, 2008). DTW could possibly be reduced by redefining the work of individuals in such a way that discourages its development, at least that part, which is engendered by incentive misalignments. This can be achieved by introducing key performance indicators (KPIs) based on organizational-level outcomes rather than department-level outcomes.

It is often thought that better quality information sharing between departments is desirable. Our study shows that sharing, by itself, does not necessarily help unless the information shared (it could be cost information, or more generally, any other operational cost parameter) is closer to the true value than the information that the recipient already has. One way to resolve the differences is by sensitizing the managers to other roles. Facilitating cross-functional experience when coupled with communication fosters learning and can significantly improve performance (Wu & Katok, 2006). Facilitating grapevine (informal communication) at the workplace is another specific step the top management could take toward this direction.

This may be an interesting line of inquiry for future research to test if the differences in perceptions indeed reduce post-intervention. Note that contrary to common expectation, the mere absence of, or reduction in, DTW is neither necessarily a "good" or "bad" thing. Different orientation between marketing and sales managers has a positive impact on market performance whereas different competencies have a negative impact (Homburg & Jensen, 2007). We conjecture that a similar pattern would hold across different functions. Thus, a more nuanced understanding is required about what kinds of differences help, and what kinds hamper. This could be a fruitful area for further research.

Another observation from our studies is the striking contrast between Marketing and OSM personnel in both companies, leading us to wonder if "Marketing are from Mars and OSM are from Venus." The former were far more articulate and forthcoming in sharing their views, and the interviews were usually much more organized and productive than with Production. Production personnel spend most of their time in their plant silos and have a close understanding of the process and efficiency. They tended to give technically detailed responses, many of which were not necessarily relevant to our study. It is likely that these DTW differences cause some dysfunctional interactions during inter-departmental meetings and joint decisionmaking as well.

From a research methods perspective, this study then reveals the important insight: simply asking individual interval scale questions to elicit organizational data, as survey researchers often do, may not reveal the "truth." Managers at Maader prima facie recognized the importance of inventory cost and rated it very highly yet differed widely when asked to quantify their responses. Similar results were obtained at Radiance (Table 7). What is surprising, as revealed by the current study, is that this problem persists even when questions are objective and have precise, "correct" answers. Indeed then, our study strengthens the argument that survey-type research may need to use multiple respondents across departments to get to the truth.


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(1) The company names and some sensitive product names have been disguised.

(2) The interview protocol was provided during the peer review process and is available from the first author upon request.


Indian Institute of Technology Bombay


Auburn University


Indian Institute of Technology Bombay


Swiss Federal Institute of Technology Zurich

Tarikere T. Niranjan (Ph D., Management Development Institute, Gurgaon) is an assistant professor of operations management in the Shailesh J. Mehta School of Management at the Indian Institute of Technology Bombay in Mumbai, India. Dr. Niranjan's research focuses on the effects that cognitive biases and human foibles, emotions and aesthetic preferences have on decision-making within operations management contexts. He also has introduced the concept of "service triads" into academic research related to operations and supply management, which is emerging as a significant area of investigation. Dr. Niranjan serves as a reviewer for several business/ management publications, and his work has been published in journals that include Decision Sciences and the Journal of Operations Management. He also serves on the editorial board of the latter publication. Prior to entering academe, he was a Flight Lieutenant in the Indian Air Force.

Shashank Rao (Ph.D., University of Kentucky) is the Jim W. Thompson Assistant Professor of Supply Chain Management in the Raymond J. Harbert College of Business at Auburn University in Auburn, Alabama. Before entering academe, Dr. Rao worked as a manager in the banking sector; he also holds a B.S. in environmental engineering and M.B.A. in marketing. His research focuses on retailing, order fulfillment and customer service. Dr. Rao's work has appeared in the Journal of Operations Management, the Journal of Business Logistics, the International Journal of Physical Distribution and Logistics Management, and many others. He serves on the review boards of the Journal of Business Logistics, the Journal of Operations Management, and the Journal of Supply Chain Management, and is an Associate Editor for the Journal of Organizational Computing and Electronic Commerce. He frequently conducts hands-on training for companies on supply chain technologies like TMS, ERP, and Routing Systems. He has also served as a consultant to manufacturers and retailers on issues like order fulfillment, RFID, and distribution management.

Sourav Sengupta (M.Tech, West Bengal University of Technology) is a doctoral candidate at the IITB-Monash Research Academy, a joint Ph.D. program between the Indian Institute of Technology Bombay, and Monash University in Australia. His research has focused on cellular manufacturing and artificial neural networks; articles based on this work have appeared in Computers and Industrial Engineering and the International Journal of Computer Integrated Manufacturing. Currently, Mr. Sengupta is working on research projects that involve service supply chains, behavioral operations management and decision sciences.

Stephan M. Wagner (Ph.D., University of St. Gallen) holds the Kuehne Foundation Chair of Logistics Management, serves as the Director of the Executive MBA Program, and is a professor in the Department of Management Technology and Economics at the Swiss Federal Institute of Technology Zurich, Switzerland. His research interests are in the areas of supply chain management, logistics and transportation management, and purchasing; his specific focus is on strategy, networks, relationships, behavioral issues, risk, innovation and entrepreneurship. In addition to his academic work, Dr. Wagner has nearly ten years of experience working for a management consulting firm and for international manufacturing firms. His research has been published in many outlets, including the Academy of Management Journal, the Journal of Management, Decision Sciences, California Management Review and the Journal of Operations Management. Dr. Wagner serves as an Associate Editor for the Journal of Purchasing & Supply Management, the Journal of Business Logistics, the Journal of Supply Chain Management, the Journal of Operations Management, and Decision Sciences.

Research Paradigms/Stances Taken in Studies 1 and 2 (a)

                 Relativism (Study 1)          Positivism (Study 2)

Order          However much knowledge is     There is a conviction that
                 gained, we will never         the universe has some
                 reach a definitive            kind of order. We can
                 understanding of the          find out the links
                 world order.                  between events and
                 Nevertheless, we can          their causes and thus
                 attempt to explore the        understand "the rules
                 various dimensions of DTW     of the game." This then
                 and develop it as a           allows us to make
                 construct.                    predictions.

External       Our (researchers')            The positivists rely on
reality          perceptions of the world      the assumption that
                 are uniquely individual.      knowledge is shareable
                 The world we actually         and verifiable: that
                 perceive does not consist     is, you see the same as
                 of a series of stimuli        I do when, say, looking
                 that we interpret throuqh     down a microscope.
                 our senses and make sense
                 of logically in a void.

               Therefore, we reflect upon    The core thesis of DTW is
                 the data and muse about       that our subjects'
                 possible explanations for     perception of reality
                 what we see.                  will NOT be the same.
                                               However, the point is,
                                               DTW can still be
                                               studied by positivist
                                               methods (e.g., Homburg
                                               & Jensen, 2007) so long
                                               as we admit that people
                                               sharing a certain
                                               thought world think
                                               more or less alike.

Reliability    We cannot always believe      Human intellect and
                 our senses, and our           perceptions are
                 memory can fool us.           reliable. You can
                 However, our skills of        depend on your senses
                 reasoning must be taken       and methods of
                 as a reliable method of       thinking. This means we
                 organizing data and           can rely on responses
                 ideas, even though there      to interview questions
                 may be several ways of        and reliable estimates
                 interpreting data. This       of the subjects' true
                 stance, especially when       opinions, and this
                 used by a team of             matches the
                 researchers drawing           researcher's estimate
                 conclusions independently     of those very measures.
                 and then discussing, can
                 result in a more
                 understanding of the

Generality     Owing to the uniqueness of    It is no good if the
                 each person and the           results of one
                 uniqueness of each event      experiment are only
                 it is very difficult to       relevant to that one
                 predict what may happen       case, at that
                 in the future under           particular time, in
                 similar conditions; it is     that particular place.
                 dangerous to generalize       We take the more
                 from studied cases. We do     moderate position taken
                 not even attempt to claim     by positivist case
                 generality.                   researchers and are
                                               satisfied with
                                               achieving theoretical
                                               generalization (Yin,

(a) Adapted from Walliman (2014). Italicized words are ours, and
they refer specifically to our study.


Profile of Interviewees

                                               Total Experience
Branch                Interview Partners         in the Plant

Wadia, Gujarat     Associate Vice President,   24 years

Wadia, Gujarat     Deputy General Manager,     22 years

Wadia, Gujarat     Manager, Production         1.5 years

Wadia, Gujarat     Manager, Logistics          10 years

Sukhroli, Mumbai   Associate Vice President,   22 years

Sukhroli, Mumbai   Manager, Marketing          20 years


Capacity-Related Perceptions

Responses Related to Capacity       Our Explanation of the Responses

Department: Production

Associate Vice President
  There is a high demand for      As a senior executive, he reflects
  Soporic Acid and a new plant      that over the long term, with the
  is being set up to resolve        new plant in operation, capacity
  the capacity issue.               will not be a critical issue for
                                    Soporic Acid.
The situation is not "hand-       However, his long previous
  to-mouth."                        experience with Fatty Alcohols
A relatively high finished-         makes him generalize the
  goods inventory is                attributes of fatty alcohol to
  maintained.                       other products. We knew Soporic
                                    Acid had a hand-to-mouth supply
                                    chain. The high finished goods
                                    inventory is basically kept in
                                    fatty alcohols and not in Soporic

Deputy General Manager

Capacity is enough to meet        Through his long experience in
  internal consumption.             Manufacturing, and being in charge
Only a small percentage of the      of both fatty acid and alcohols,
  product is sold, so no            he understands that Soporic Acid
  demand-supply gap exists.         is an ingredient of alcohol. This
No inventory is kept, neither       shapes his perception that a large
  raw material nor finished         proportion of Soporic Acid
  product.                          produced is consumed internally.
                                    His role is limited to the
                                    production, packing, and dispatch.

No machine shutdown leading       Tracking the fate of the product is
  to stoppage, continuous           out of his scope. Actually most of
  production.                       it is sold; only some is consumed
                                    internally. Stoppage is not common
                                    as they go for preventive
                                    maintenance and have standby


Capacity is enough to meet        His perception is also shaped by the
  internal consumption.             same belief and understanding as
Demand is stable and no             DGM of Production, with whom his
  inventory (raw material or        office is co-located. Since the
  finished product) is kept.        demand is stable, there is no need
                                    for inventory. Only a small
                                    proportion is sold outside and the
                                    rest is consumed internally.

Department: Marketing & Sales

Associate Vice President

Inadequate capacity is a          Being in direct contact with the
  major issue.                      customers, he "feels" the capacity
No knowledge about the              constraints but he has no idea
  internal consumption              about the internal consumption
  of Soporic Acid.                  possibilities. The hand-to-mouth
Believe there is some               supply chain shapes his
  inventory                         perceptions that a reasonable
Believe there are regular           amount of raw material as well as
  machine shutdowns for             finished-goods inventory is kept
  maintenance leading to            for emergencies. Strongly believes
  production stoppage.              that Wadia plant also has regular
                                    stoppage and maintenance. However,
                                    preventive maintenance with
                                    standby equipment obviates such
                                    stoppages, as is the case in

Responses Related to Capacity       Our Explanation of the Responses


Soporic Acid faces capacity       Capacity barely exceeds demand. The
  shortage.                         system cannot handle variability,
Plant stoppage due to machine       and delay in delivery hurts
  failure has very high impact      customer trust. Production people,
  over customer satisfaction.       however, cannot see this and
                                    perceive the capacity to be
                                    adequate. Since the capacity is
                                    limited and the supply chain is in
                                    a hand-to-mouth situation, with
                                    high demand, any failure leads to

Department: Logistics

To adjust the excess demand       Being in logistics, he is responsible
  with limited capacity, some       for moving the materials to the
  of the production processes       other plants for the outsourcing
  are outsourced.                   process and delivering the semi-
Minimum inventory is kept for       finished product back to the
  safety.                           plant. While Production does not
                                    realize capacity limitations and
                                    marketing perceives production to
                                    be plant's concern, they seem
                                    ignorant about the overall
                                    outsourcing process.


Quality-Related Perceptions

Responses Related to Quality       Our Explanation of the Responses

Department: Production

Associate Vice President
Raw material quality is a        Being the head of the Production unit,
  concern but minor deviations     he is able to see the larger
  are knowingly accepted with      picture and understand the
  a rebate.                        difficulty in actually detecting
Production never goes out of       quality of material. Customer-
  specifications.                  demand being high, he also has to
After stoppage, once the           tradeoff sometimes and accept
  machine is restarted, it         materials with minor quality
  takes time to reach stable       variations as any such rejection
  temperature, but it does not     delays the entire supply chain.
  affect quality of the          Design changes are made as and when
  product.                         customers experience variations and
Quality is never compromised.      impurities in the products and
  Inferior quality product is      update the production team.
  never sold.                    Being in Production, he can see such
                                   design changes happening and this
                                   makes him realize that there is no
                                   other problem. However, new quality
                                   issues are reported by the
                                   customers to the marketing team
                                   which might not be reported to
                                   production immediately.
                                 Being in production, he sees quality
                                   as an absolute criterion where
                                   inferior good are rejected.
                                   However, standard products with
                                   minor variations with defined
                                   standards of specific customers may
                                   be sold to other customers which
                                   marketing and sales may decide.

Deputy General Manager

Raw material quality is always   He gets a continuous flow of raw
  good.                            materials to produce quality
No problems with the production    products. However, to satisfy some
  process, only quality            customer specifications, it may
  products are produced,           require some variation to the usual
  always meet the                  raw materials, probably of a higher
  specifications.                  quality, which he might not
In case quality of product         perceive to be quite relevant.
  deviates, it can be blended    The production process being robust
  with the good quality            and recently redesigned to cater to
  products.                        customer specification, he
                                   perceives that the specifications
                                   are always met and there is no
                                   quality issue.


Quality Control ensures that     Being new in the department, he had
  raw material quality is          not himself seen any major issues
  always good.                     with the raw materials and trusts
No problems with the production    the quality control process. In
  process, only quality            reality, there are problems that
  products are produced.           quality control team cannot detect.
                                 Being in the production silo, he is
                                   also unaware of some of the
                                   specific customer requirements. He
                                   thinks in terms of absolute quality
                                   whereas marketing sees quality as
                                   defined by individual customers in
                                   their technical specifications.

Department: Marketing & Sales

Associate Vice President
When production deviates from    Low quality for one customer might be
  customer specifications,         right quality for another,
  alternatives are thought of.     depending on specifications. Once a
Production people try to           customer rejects a product,
  understand                       Marketing looks for other customers
  quality only through             or blends it with better quality
  their existing knowledge.        product.
Some solutions are identified    Being in the Marketing team he sees
  but it is up to the              quality through the lens of
  capability of the production     customers' requirements, which vary
  to implement and rectify.        from one customer to another. Thus
                                   unlike the production team, it is
                                   difficult for him to conclude that
                                   there are no quality issues with
                                   the product.
                                 Being distant from the actual
                                   customers production people often
                                   find difficulty in understanding
                                   the quality requirement and build
                                   on their existing knowledge to get
                                   the best solution instead of
                                   rethinking over critical issues as
                                   unknown impurities and anomalies.


Raw material quality varies.     Marketing people look at problems
Variations from the desired        from their experience and general
  specifications                   interactions with production people
  lead to rejection by             as well as the customers. He
  targeted customers.              understands the magnitude of
  In such cases, sell rejected     specification related
  products to other customers.     dissatisfaction among the customers
                                   and tries to rationalize by
                                   visualizing through his self-
                                   constructed reasoning of the
                                   apparent problem. He also realizes
                                   that Quality is a relative term,
                                   where low quality only means that
                                   it does not meet a particular
                                   customer's specification and thus
                                   on rejection tries to find new
                                   customers whose requirements meet
                                   the on-hand rejected product.
                                   Production views low quality and
                                   rejection on an absolute term and
                                   strongly reflects that no low
                                   quality product is sold. In case
                                   there is a low quality issue it is
                                   either internally consumed or

Department: Logistics

Raw material is mostly OK, and   His perceptions are largely shaped by
  material rejection is rare.      his role and influence of the
                                   production department as his office
                                   is located in the same premises as
                                   DGM and Manager of Production.
                                   Being in charge of logistics he is
                                   not very well qualified to
                                   understand quality, especially
                                   through the marketer's lens and
                                   from the informal discussion with
                                   the production team perceives
                                   quality in absolute scale and
                                   blending to be the only solution.

Productivity-Related Perceptions

Responses Related to
Productivity                       Our Explanation of the Responses

Department: Production

Associate Vice President

Product and byproduct balance    Marketing fears that increasing
  is done well by the              demand for Soporic Acid leads to
  Marketing department.            accumulation of the byproduct, with
                                   high storage cost. However, those
                                   working under him fail to
                                   appreciate this dilemma.

Deputy General Manager

Byproducts are internally        The byproduct is also internally
  consumed, so disposal or         consumed. Production is aware of
  selling of the excess            this but hold the view that they
  byproducts formed in the         should focus on only Soporic Acid
  process of producing more        not on the byproduct, as it will be
  Soporic Acid to cater to         consumed in other products.
  high customer demand is not    Machine corrosion is a problem in old
  an issue.                        machines and equipment. Soporic
Machine failure does not occur     Acid plant being relatively new, no
  and corrosion is not a           such issues arise.
  problem as it is a new
  product, and the equipment
  is new.


Byproducts from the production   Like his senior, he too had no clue
  of Soporic Acid are              about the dilemma of balancing the
  internally consumed.             production in relation to
Machine failure never happens      byproduct.
  and corrosion is not a         Being relatively new in the company
  problem.                         he has never witnessed any machine
                                   failure or corrosion issues and
                                   thus perceives that all work well.

Department: Marketing & Sales

Associate Vice President

Difficult to get the right       His primary objective is to maximize
  balance as more Soporic acid     revenue. He worries that failure to
  production leads to more         sell all the byproduct will incur
  byproduct production leading     storage cost and may as well add on
  to an additional pressure of     to the opportunity cost, due to its
  finding more customers for       much smaller demand.
  the byproduct.                 With his limited scope and exposure
Plant stoppage due to              into production operations, he does
  maintenance is a regular         not realize that the plant has
  phenomenon.                      preventive maintenance and standby
                                   machines help avoid any plant
                                   stoppage specifically for Soporic
                                   Acid. However his observation is
                                   true for some of the other

Department: Logistics


Stoppage due to Maintenance is   From his experience in other plants
  about 3 weeks per year.          he tends to generalize reality and
Corrosion is an issue.             reach a false conclusion. The
                                   production plant for Soporic acid
                                   being relatively new, they do not
                                   have such maintenance issues or


Availability-Related Perceptions

Responses Related to
Availability                       Our Explanation of the Responses

Department: Production

Associate Vice President
Raw materials are imported,      His thoughts are largely influenced
  so there are some                by the attributes of alcohols (in
  availability limitations.        which he worked previously) and he
The company has contracts          unknowingly generalizes those
  with the transporters, so        attributes to other products
  vehicle availability for         including Soporic Acid. Raw
  finished products is a           materials for Soporic Acid are
  nonissue.                        locally supplied and usually
                                   availability is NOT a problem.
                                 He seems satisfied with the existing
                                   contracts and is overlooking the
                                   frequent problems in actual
                                   delivery. Temporary unavailability
                                   or delay of 1-2 days does not mean
                                   much to him. However, for Marketing
                                   even a few hours' delay is a
                                   significant loss.

Deputy General Manager

Raw material availability is     Being in a senior position in
  not a problem due to having      production, continuously producing
  multiple suppliers.              Soporic Acid, he understands that
All deliveries are pre-planned     raw material availability is
  and logistics is not a           majorly balanced with dependence on
  problem.                         multiple suppliers.
                                 Similar to the AVP's view, noted above


Long-term relationship with      His past experiences shape his views
  suppliers and raw material       of single suppliers with long-term
  availability means, there is     relationships for effective control
  no problem.                      over supplies, whereas there are
Transport vehicles are always      multiple smaller short-term
  available.                       suppliers who cater on need-basis
                                   for Soporic Acid.
                                 Quite similar to AVP and DGM's views
                                   noted above

Department: Marketing & Sales

Associate Vice President

Suppliers of the right quality   His customer orientation makes him
  are scarce.                      worry about the right raw material
Transport vehicle availability     and hence product quality, far more
  is an issue.                     than that Production does.
                                 Transport vehicle availability to him
                                   means "at that moment." Any
                                   deviation from this is a concern to

Department: Logistics


Raw material availability is an  The co-located production department
  issue but managed well.          influences his perceptions.
Transport vehicles are always    Being logistics in-charge he too
  available.                       finds vehicle availability not to
                                   be a problem, however the same
                                   explanation that the meaning and
                                   priority of "always available" for
                                   him is different from that of the
                                   marketing people.


Summary of Perceptions of Various Costs with Reference to Soporic Acid

                                Transportation         Maintenance
Inventory Cost                       Cost                  Cost

Production Department

AVP    Low inventory.         Low compared to       Low, it being a
         Perceives low cost     production cost       new plant
DGM    Thinks no inventory    Same as above         Same as above
         hence zero cost
Mgr    Same as above          Same as above         Same as above

Logistics Department

Mgr    There will be          It is neither very    Medium, influenced
         a small inventory      low nor very high     by production

Marketing and Sales Department

AVP    Some inventory is      It is neither very    Relatively high as
         required               low nor very high     he faces quality
         given the demand                             issues
Mgr    Same as above          Same as above         Same as above

           Production           Detention
Invento       Cost                Cost

Production Department

AVP    High                 Low, relative to
                              total revenue
DGM    Same as above        Same as above

Mgr    Same as above        Same as above

Logistics Department

Mgr    Unaware of the       Low, relative to
         cost structure       total revenue

Marketing and Sales Department

AVP    Perceives it to be   High, as delays
         low as for other     affect customer
         products             satisfaction

Mgr    Same as above        Same as above

Maader (Study 2) Managers' Responses to Cost-Drivers

Cost-drivers (grouped)                    M1      M2      M3      M4

Purchasing price/Ordering/Unit price      50%             10%
Supplier selection/Supplier               40%     25%             15%
Inventory costs/lnventory                2.5%     20%     10%     15%
management/Holding cost/ Handling
Stockout price/Loss of customers         2.5%                     35%
Freight cost/Transportation cost         2.5%     5%      20%
Handling                                 2.5%             30%
Product design/Development cost                   50%
Interest cost                                             30%
Delivery time                                                     35%
Problems with quantity
Manufacturing (rework)
Service (after sales)
Total                                    100%    100%    100%    100%

Cost-drivers (grouped)                    M5      M6      M7

Purchasing price/Ordering/Unit price     12.5%    5%      12%
Supplier selection/Supplier                       30%     18%
Inventory costs/lnventory                 50%     20%     18%
management/Holding cost/ Handling
Stockout price/Loss of customers         12.5%    10%
Freight cost/Transportation cost         12.5%    5%      1%
Product design/Development cost                           15%
Interest cost                                             18%
Delivery time
Problems with quantity                   12.5%
Manufacturing (rework)                            30%
Service (after sales)                                     18%
Total                                    100%    100%    100%


Total Cost of Ownership for Sensor Lamp with Different Frequencies of

                   M1          M2              M3          M4

Cost               1 x     1 X     12x     1 X     12x     1 X
components        year    year    year    year    year    year

Product price      90%     62%     88%     65%     80%     89%
Transportation     5%     1-2%     4%      3%      7%      5%
Inventory cost     3%      30%     3%      30%     8%      5%
Purchasing         2%      5%      5%      2%      5%      1%

                                            Real world
                   M5          M7             values

Cost               1 X     1 X     12x     1 X     12x
components        year    year    year    year    year

Product price      70%     60%     87%     70%     95%
Transportation    7.5%     3%      5%      1%      2%
Inventory cost     20%     35%     5%      29%     3%
Purchasing        2.5%     2%      3%      0%      0%

                            @ 1 x/year
                       Statistics of responses

Cost                                      Coeff.
components         Min     Max    Mean     Var.

Product price      60%     90%     74%     .18
Transportation    1-2%    7.5%     5%      .44
Inventory cost     3%      35%     19%     .72
Purchasing         1%      5%      3%      .45

Note: 1x refers to sea freight; small, frequent orders 12x refer to
the proposed airfreight mode. Some managers declined to answer for 12x
year (which was a hypothetical question), citing inability to answer.


Cost-Drivers of Sensor Lamp


                      Very High                    High

Cost-Drivers    Product design [1]       Purchasing price [1]
                Inventory holding [1]    Supplier selection [1]
                Delivery time [1]        Supplier relationship [4]
                                         Investment cost [2]
                                         Manufacturing yield [1]
                                         Loss of customer [1]
                                         Inventory holding [2]


                         Med                      Low

Cost-Drivers    Inventory holding [3]    Transportation
                Stockout cost [2]          cost [4]
                Forecasting [1]          Handling [1]
                Transportation [2]       Purchasing
                Purchasing                 overheads[2]
                  overheads [1]          Stockout cost [1]
                Design cost [1]          Inventory holding [1]


Cost-Drivers Regarding Improvement Possibilities within Each

at Maader
Purchasing           Logistics         Inventory        Manufacturing

Supplier          Freight cost      Number of SKU's    Planning [M1-7]
  relationship      [M1-4,6]          [M6]
Supplier          Efficiency [M4]   Unit price         Education [M7]
  selection                           [M7, M4]
Cheap unit        Planning [M6]     Safety stock       Production
  price [M3-6]                        [M7]               system
Handling          Handling          Turnover rate      Redesign [M4]
  [M1,2,3,7]        [M1,M2]           [M2]
Reorder cost      Customs [M1]      Investment [M4]    Yield [M1, M3]
Supplier base     Documentation     Carrying cost      Work in process
  [M4, M5]          [M1]              [M1-7]             [M3]
Service [M7]      Transportation    Stockout cost
                    [M3, M5]          [M5]
Contracts [M2,                      Cash flow
  M4]                                 [M3, M4]
Order quantity                      Housing [M1,
  [M5]                                M3]
Quality [M3]                        Special handling
Efficiency [M7]                       cost [M1-3]
Time of staff                       Slow moving
  [M1]                                items [M6]
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Article Details
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Author:Niranjan, Tarikere T.; Rao, Shashank; Sengupta, Sourav; Wagner, Stephan M.
Publication:Journal of Supply Chain Management
Article Type:Statistical data
Geographic Code:4EXIC
Date:Oct 1, 2014
Previous Article:Supply chain drivers of organizational flexibility--a study of U.S. manufacturing industries.
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