Real-time Business Data Can Hurt Decision-making

While technological advances are enabling managers to track the flow of goods in the supply chain minute by minute, such close monitoring might not provide the benefits that many businesses expect, according to a new study.

By allowing faster response to new developments, real-time tracking should theoretically help managers make better business decisions, but the opposite is sometimes true, find Nicholas Lurie, assistant professor of marketing at Georgia Tech College of Management, and Jayashankar Swaminathan, an operations professor at the University of North Carolina at Chapel Hill.

The frequent feedback provided by supply-chain monitoring tools like Radio Frequency Identification Technology - small chips attached to pallets, cases or individual product units for remote tracking - might cause managers to overreact to random fluctuations in demand, responding to the most recent data received instead of examining the bigger picture, explain the researchers in their working paper, "Is Timely Information Always Better? The Effect of Feedback Frequency on Performance and Knowledge Acquisition."

"If retailers could choose to receive a monthly, weekly or daily recap of Campbell's tomato soup sales, which recap frequency would they choose? Many would select the daily recap, thinking it would give them a competitive edge," Lurie says. "However, our study finds that when a manager is given more frequent information on product demand, decision-making performance actually decreases, particularly in environments characterized by a high degree of variability."

Real-time feedback affects many types of business activities beyond supply-chain management. For example, online stock traders' performance seems to suffer from too much information. Previous research suggests that they tend to trade more frequently in response to price movements that might simply be random, Lurie notes.

He and Swaminathan studied the effect of feedback frequency on performance using two computer-based experiments, in which subjects acted as newsvendors dealing with inventory orders, and a "virtual factory" management simulation giving participants an opportunity to apply concepts such as inventory management, lot sizing, and process control in a realistic environment.

Based on their results, the researchers advise managers using technologies that provide frequent feedback to temper their reactions to the most recent data received.

For more information, contact Lurie at 404-894-4380 or nicholas.lurie@mgt.gatech.edu.

Writer: Brad Dixon, College of Management