Supplier selection behavior under uncertainty

Contextual and cognitive effects on risk perception and choice

Research output: Contribution to journalArticle

27 Citations (Scopus)

Abstract

Buyers often make supplier selection decisions under conditions of uncertainty. Although the analytical aspects of supplier selection are well developed, the psychological aspects are less so. This article uses supply chain management and behavioral decision theories to propose that attributes of the purchasing situation (category difficulty, category importance, and contingent pay) affect cognition that, in turn, affects a supply manager's choice. We conducted a supplier selection behavioral experiment with practicing managers to test the model's hypotheses. When the context involves an important or difficult sourcing category, higher risk perceptions exist that increase preference for a supplier with more certain outcomes, even when that choice has a lower expected payoff. However, the presence of contingent pay decreases risk perceptions through higher perceived supplier control. We also find that a manager's risk propensity increases preferences for a supplier with less certain outcomes regardless of perceived risk. Our model and results provide a theoretical framework for further study into the cognitive aspects of supplier selection behavior and provide insight into biases that influence practicing supply chain managers.

Original languageEnglish (US)
Pages (from-to)467-505
Number of pages39
JournalDecision Sciences
Volume45
Issue number3
DOIs
StatePublished - 2014

Fingerprint

Risk perception
Managers
Decision theory
Supply chain management
Purchasing
Supply chains
Uncertainty
Supplier selection
Suppliers
Experiments

Keywords

  • Behavioral experiment
  • Compensation
  • Perception of control
  • Risk perception
  • Risk propensity
  • Risk-taking
  • Spend category
  • Supplier selection
  • Supply risk management

ASJC Scopus subject areas

  • Management of Technology and Innovation
  • Strategy and Management
  • Business, Management and Accounting(all)
  • Information Systems and Management

Cite this

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N2 - Buyers often make supplier selection decisions under conditions of uncertainty. Although the analytical aspects of supplier selection are well developed, the psychological aspects are less so. This article uses supply chain management and behavioral decision theories to propose that attributes of the purchasing situation (category difficulty, category importance, and contingent pay) affect cognition that, in turn, affects a supply manager's choice. We conducted a supplier selection behavioral experiment with practicing managers to test the model's hypotheses. When the context involves an important or difficult sourcing category, higher risk perceptions exist that increase preference for a supplier with more certain outcomes, even when that choice has a lower expected payoff. However, the presence of contingent pay decreases risk perceptions through higher perceived supplier control. We also find that a manager's risk propensity increases preferences for a supplier with less certain outcomes regardless of perceived risk. Our model and results provide a theoretical framework for further study into the cognitive aspects of supplier selection behavior and provide insight into biases that influence practicing supply chain managers.

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