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 J S C M 12056 Dispatch: 10.6.14 CE: Raja S.
Journal Code Manuscript No. No. of pages: 20 PE: Saranya Shree

1
2
EXISTENCE AND EXTENT OF OPERATIONS AND SUPPLY
3 MANAGEMENT DEPARTMENTAL THOUGHT WORLDS: AN
4
5 EMPIRICAL STUDY
6
7 TARIKERE T. NIRANJAN
8 Indian Institute of Technology
9
10
11 SHASHANK RAO
12 Auburn University
13
14 SOURAV SENGUPTA
15
16
Indian Institute of Technology
17
18 STEPHAN M. WAGNER
19 Swiss Federal Institute of Technology 2
20
21
22
23 Operations and supply chain management (OSM) solutions typically
24 assume that the decision makers in different organizational roles know
25 the key supply chain parameters equally well. Our research questions this
26 assumption by employing two detailed case studies. Study 1 develops the
27 OSM departmental thought worlds (DTW) construct and examines how
28 and why they occur, with reference to supply chain breakdown. Study 2
29 measures the extent of OSM DTW with reference to total cost of owner-
30 ship (TCO) of bought parts. We find that organizational roles indeed
31 shape perceptions of the task environment, and these perceptions follow
32 a predictable pattern. An insight into this influence of DTW is essential
33 for OSM tools to work in practice. In particular, model-based approaches
34 must consider that even if different departments agree on the objective
35 function, the parameter values may differ across departments, leading to
36 divergent solutions.
37
38 Keywords: behavioral supply management; case studies; departmental thought
39 worlds; human judgment and decision making; total cost of ownership
40
41
If (. . .) we accept the proposition that both the managers understand and equally appreciate the cost
42
knowledge and the computational power of the elements involved in the supply chain and thereby
43
decision maker are severely limited, then we must the financial outcomes of their decisions can be
44
distinguish between the real world and the actor’s known across the organization (e.g., Cachon & Larivi-
45
perception of it and reasoning about it. (Simon, ere, 2005).
46
1986, p. S211) The above assumption, however, is questionable. As
47
such, there is not commensurate research on how or
48
whether managers estimate cost parameters and whether
49
they estimate these parameters uniformly. In fact, the
50 INTRODUCTION
majority of OSM literature “typically treats inventory
51 Mainstream analytical research literature in opera-
costs as known [and] researchers use this and other rel-
52 tions and supply chain management (OSM) provides
evant information to construct optimization models
53 an abundance of normative solutions to optimize sup-
and arrive at optimal inventory decisions” (Eroglu &
54 ply chain performance and drive out inefficiencies
Hofer, 2011, p. 228). This assumption is also increas-
55 (e.g., Cachon, 2003; Simchi-Levi, Wu & Shen, 2004).
ingly coming under question by empirical scholars. For
56 A central assumption implicit in this literature is that

Xxxx 2014 1
 Journal of Supply Chain Management
1 example, Waller and Fawcett (2011, p. 212) exhort that
2 “additional research is needed to understand phenom-
3 ena associated with how people utilize costs in logistics
4 decisions, why some costs are measured with great
5 accuracy and why others are completely ignored, how
6 to get managers to utilize cost information in a way
7 that leads to better decisions, and how to get managers
8 to seek to measure costs that might be ignored.”
9 Indeed, there is a good reason why we must investi-
10 gate this aspect of OSM. If managers within an organi-
11 zation perceive their costs differently, it is conceivable
12 that when they optimize their cost-centers (or use any
13 other OSM tool) they will accordingly arrive at differ-
14 ent optimal answers. This would result in supply
15 chain inefficiencies, regardless of how good the OSM
16 systems and tools might be. Our study investigates the
17 differences in perceptions, i.e. “departmental thought
18 worlds” (DTW) (Deshpande & Webster, 1989; Dough-
19 erty, 1992; Niranjan & Rao, 2012), of managers across
20 the organization, with reference to various costs affect-
21 ing their supply chain. We argue that an understand-
22 ing of this is essential because uniformity of
23 underlying perceptions is an implicit, but rarely tested,
24 assumption in the OSM literature. While this
25 approach has been taken before in the literatures of
26 marketing (Frankwick, Ward, Hutt & Reingen, 1994;
27 Homburg & Jensen, 2007), strategy making and new
28 product development (Dougherty, 1992; Griffin &
29 Hauser, 1996; Maltz, 1997), we study this question
30 uniquely within the OSM context. We choose to
31 investigate the questions “Do managers know the cost
32 parameters affecting the supply chain? If so, is this
33 perception/knowledge uniform across departments? If
34 not, what causes these differences?”
35 These are important questions to consider since they
36 get to the heart of an assumption that mainstream
37 OSM literature has taken for granted for a long time
38 now. If it emerges that there is uniformity among
39 managers with respect to their cost perceptions, then
40 it would be validation of an assumption that has lar-
41 gely gone unchallenged in a majority of the OSM lit-
42 erature (Eroglu & Hofer, 2011). On the other hand, if
43 it emerges that there is indeed non-uniformity in this
44 area as has been suggested recently (e.g., Waller &
45 Fawcett, 2011), it would open a new avenue of future
46 research where scholars would have to consider this
47 additional input when building prescriptive or
48 descriptive models of supply chains.
49
50
51 MULTI-DISCIPLINARY FOUNDATIONS OF
52 OSM DTW
53 Differences in departmental world views is one of
54 the well-established problems facing organizations
55 (Dearborn & Simon, 1958; Shapiro, 1977). An
56
2 Volume 0, Number 0
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 simu-
lated prison setting on the Stanford University cam-
pus. Their new roles heavily influenced the subjects’
perceptions, and the subjects took their roles so seri-
ously that within a week of the experiment’s com-
mencement 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 aca-
demic 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 per-
ceive their environment differently due to the exis-
tence 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,
Garcıa-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 backor-
der cost as b) is that the research would be highly
generalizable. However, unless one sees solutions
borne out of real-life parameters, increasingly sophisti-
cated normative models do not by themselves offer
much useful insight to managers. An emerging
 Departmental Thought Worlds 1

1 approach—behavioral operations management— 1982; p. 24), and may well influence future behavior 3
2 explicitly studies human behavior in OSM contexts because people often make decisions on the basis of
3 primarily through empirical methods and redresses how they remember an experience versus how it actu-
4 some of the limitations of analytical methods (e.g., ally occurred (Flint, Woodruff & Gardial, 2002, p.
5 Bendoly, Donohue & Schultz, 2006; Gino & Pisano, 104). We took field notes to record any interesting
6 2008; Knemeyer & Naylor, 2011; Tokar, 2010). Fol- reactions, response spontaneity, and other subtle
7 lowing this latter approach, we explicate a limitation behavior observed during the actual interviews as well
8 inherent to extant normative OSM research: the ubiq- as during informal interactions over meals and
9 uitous assumption that managers equally identify the refreshments.
10 dimensions of the problem and cost parameters of After each interview, we transcribed the recordings
11 their supply chains. and compared, discussed, and edited the individual
12 field notes within the research team. The transcripts
13 were then studied thoroughly before moving to the
14 RESEARCH METHODOLOGY next interview. Often individual interviews provided
15 Given the multiple facets to our research questions, new insights that helped us to revise the interview
16 from an operational standpoint we break the ques- guide, apart from sensitizing us to future interviews.
17 tions into two sub-objectives. The first objective was The data gathered through multiple sources such as
18 to inductively develop the construct OSM-DTW and interviews, informal discussions, field notes, on-site
19 its dimensions—i.e., how and why. The second is to observations, and archive studies ensured data trian-
20 test the existence of DTW and quantify it in a different gulation, helped to mitigate the researchers’ biases,
21 context—i.e., how much, and uncover any possible dis- and increased the reliability and validity of our study
22 cernible patterns in it. Studies 1 and 2 address these (Pagell & Wu, 2009; Yin, 2009).
23 sub-objectives, respectively.
24 When the human being is part of the OSM phenom-
25 enon to be studied, it is useful to adopt constructivist STUDY 1: RADIANCE INDUSTRIES1
26 approaches and qualitative research (Autry & Flint, With annual turnover of USD 150 million, Radiance
27 2010). On a continuum, we would place the core Industries is India’s leading manufacturer of oleo-
28 ontological assumptions of Study 1, which aims to chemicals and sells more than one hundred chemi-
29 build a new construct—OSM DTW—as “reality as a cals, edible oils, and fats to over 60 countries. Its
30 contextual field of information,” and “man as infor- products are broadly categorized into fatty alcohols,
31 mation processor” (Morgan & Smircich, 1980). Study fatty acids, surfactants, and glycerin. The market
32 2 builds on Study 1 and tests and quantifies OSM dynamics across the product range vary widely, with
33 DTW with a more positivist approach (reality as a stiff competition in some markets and near monopoly
34 concrete structure and human beings as responding in others. The company currently operates two plants
35 mechanisms (Morgan & Smircich, 1980)). The overall in Western India: Wadia in Gujarat, and Sukhroli in
36 research design integrating the two studies can be Mumbai, India’s financial capital; a third plant is also
37 viewed as one of replication over two cases, which planned. We chose the Wadia plant, a modern, inte-
38 can yield more complete findings (Yin, 2009) grated-manufacturing facility for our study.
39 (Table 1). The first step toward building the OSM DTW con-
40 Despite the paradigmatic differences, some common struct was to identify a focal OSM problem to base
41 techniques were used, such as starting research with our study on. We carried out exploratory plant visits
42 “grand tour” descriptive observations (Spradley, 1979; and initial discussions with the top management
43 Whitehead, 2005) in which everything was generally team (our key contacts being V.P., Manufacturing,
44 observed in the setting before the specifics of the who had the breadth of knowledge, and Head,
45 study began to emerge. As noted by Pagell and Wu Human Resources, who had access to all key person-
46 (2009, p. 43), “The use of multiple respondents and nel, helped us in problem identification), with the
47 multiple types of data mitigates the biases of a single goal that the problem had to be of critical impor-
48 respondent.” Accordingly, at least one of the authors tance to the company, and sufficiently broad and
49 (usually two) and one trained research assistant par- complex to bring out the DTW differences from
50 ticipated in each of our field research visits. We car- across the organization, and one that potential
51 ried out the interviews at the respondents’ workplace respondents could readily relate to. Given the capaci-
52 and audio-recorded them. Although interviews merely tated supply chain environment, timely supplies are
53 elicit perceptions or memories that may not necessar- of critical importance, and “breakdown” came out as
54 ily match the “true” state, they are likely “representa-
55 tive of the underlying [memory] structure with respect 1
The company names and some sensitive product names have
56 to both content and organization” (Lynch & Thomas, been disguised.

Xxxx 2014 3
 Journal of Supply Chain Management

1 TABLE 1
2
Research Paradigms/Stances Taken in Studies 1 and 2a
3
4 Relativism (Study 1) Positivism (Study 2)
5
6 Order However much knowledge is gained, we will There is a conviction that the universe
7 has some kind of order. We can find
never reach a definitive understanding of the
8 world order. Nevertheless, we can attempt toout the links between events and
9 explore the various dimensions of DTW and their causes and thus understand “the
10 develop it as a construct. rules of the game”. This then allows
11 us to make predictions.
12 External reality Our (researchers’) perceptions of the world are The positivists rely on the assumption
13 uniquely individual. The world we actually that knowledge is shareable and
14 perceive does not consist of a series of stimuli verifiable: that is, you see the same as
15 that we interpret through our senses I do when, say, looking down a
16 and make sense of logically in a void. microscope.
17 Therefore, we reflect upon the data and muse The core thesis of DTW is that our
18 about possible explanations for what we see. subjects’ perception of reality will
19 NOT be the same. However, the
20 point is, DTW can still be studied by
21 positivist methods (e.g., Homburg &
22 Jensen, 2007) so long as we admit
23 that people sharing a certain thought
24 world think more or less alike.
25 Reliability We cannot always believe our senses, and our Human intellect and perceptions are
26 memory can fool us. However, our skills of reliable. You can depend on your
27 reasoning must be taken as a reliable method senses and methods of thinking. This
28 of organizing data and ideas, even though means we can rely on responses to
29 there may be several ways of interpreting interview questions and reliable
30 data. This stance, especially when used by a estimates of the subjects’ true
31 team of researchers drawing conclusions opinions, and this matches the
32 independently and then discussing, can result researcher’s estimate of those very
33 in a more comprehensive understanding of measures.
34 the phenomenon.
35 Generality Owing to the uniqueness of each person and It is no good if the results of one
36 the uniqueness of each event it is very experiment are only relevant to that
37 difficult to predict what may happen in the one case, at that particular time, in
38 future under similar conditions; it is that particular place. We take the
39 dangerous to generalize from studied cases. more moderate position taken by
40 We do not even attempt to claim generality. positivist case researchers and are
41 satisfied with achieving theoretical
42 generalization (Yin, 2009).
43 a
Adapted from Walliman (2014). Italicized words are ours, and they refer specifically to our study.
44
45
46 one of the pressing issues for the company. Break- While these were generic problems in this industry,
47 down, as used in the company parlance, refers to of particular interest was the product Soporic Acid, a
48 delivery delays or failure due to any cause, such as fractionated fatty acid. Soporic Acid is of very high
49 lack of production capacity, raw material unavailabil- value and arguably the most important product for
50 ity, machine failure, mechanical or technical issues the company. For this reason, the senior and middle
51 related to equipment and processes, byproduct man- level management across all of the departments were
52 agement, issues with customer specifications, and familiar with it, more so than with any other product.
53 transport vehicle availability. The frequency of techni- This was the key reason to focus our study on Soporic
54 cal breakdowns is about once per month. Every Acid.
55 machine-related breakdown lasts a minimum of Soporic Acid is frequently produced on the basis of
56 1 day and can go as long as 7 days. forward buying contracts. Spot selling allows higher

4 Volume 0, Number 0
 Departmental Thought Worlds 1

1 margins to be charged but also makes production contextual meaning, and (3) to explain the catego-
2 planning more challenging. With limited capacity and rized data and their interpretations in light of DTW.
3 almost no inventory buffers, any breakdown or supply Through open coding we could categorize all of the
4 issues result in non-fulfillment of demand, dip in the managers’ breakdown-related perceptions into five
5 market share, loss of goodwill, and sometimes even dimensions: Capacity-, Quality-, Availability-, Produc-
6 incur penalties. The total installed capacity for this tivity-, and Effectiveness-related differences. Capacity
7 product is 1,500 tons per month (1,100 tons from relates to production capacity and inventory status,
8 Wadia and 400 tons from Sukhroli). The raw material and we grouped all of the relevant perceived differ-
9 is rapeseed oil. A moderately profitable byproduct ences first to understand the response pattern, then to
10 “Lubolic—30” is also produced. Divine Organics, link them to the respondents’ experience and manage-
11 located in the suburbs of Mumbai, is the biggest cus- rial responsibilities, and finally, to interpret the
12 tomer for Soporic Acid, with a monthly requirement responses and explain the similarities and dissimilari-
13 of about 1,200–1,300 tons. The other major customer ties in light of DTW, both at the individual and
14 is AKZO Nobel, whose operations span the world. department level. For example, as illustrated in
15 The final products have application in the food and Table 3, when we asked DGM (Deputy General Man-
16 plastic industries. agement) Production about the capacity issues and
17 Once the focal problem and product were identified, demand-supply mismatch, he was confident that
18 the next step was to choose the respondents. After capacity and supply were enough to match the
19 consulting the Head of Human Resources and the demand. Even Manager, Production, had similar
20 Vice President of Manufacturing, we chose respon- views.
21 dents from the marketing, logistics, and manufactur- When we asked the AVP Marketing the same ques-
22 ing functions who were knowledgeable about the tion, he was quite concerned that inadequate capacity
23 problem and product. All of these business functions would lead to a high probability of a demand/supply
24 are considered to be part of supply chain manage- gap. In addition, DGM Production also clarified that
25 ment in the literature and practice (Cooper, Lambert there were no machine shutdowns leading to stop-
26 & Pagh, 1997). The profile of each interviewee is pre- page, while AVP Marketing perceived such shutdowns
27 sented in Table 2. to be one significant reason behind capacity issues.
28 Each formal interview lasted between 45 and The differences in their perceptions were shaped by
29 90 min. A middle manager was tasked with facilitat- their past experiences, varying responsibilities, intra-
30 ing the interviews as a silent observer and served as departmental exposure and inter-department interac-
31 an excellent sounding board for corroborating our tions. Table 3 provides details of the responses and
32 understanding. Once all the interviews had been com- our interpretations explaining DTW differences related
33 pleted, we began interpreting the interviews and com- to Capacity.
34 paring them across the hierarchy, as well as across the In the same way, we grouped all responses related
35 different departments. Whenever we encountered to raw material quality, final product quality, and
36 inconsistencies among the data sources or noticed crit- issues with meeting customer’s specification, under
37 ical issues, we obtained the respondents’ clarifications the category Quality. When asked about the quality of
38 through follow-up emails and a second round of tele- the raw materials and products produced and what
39 phonic interviews. Three specific goals guided the data they do with poor quality products, the production
40 analysis: (1) to identify the different dimensions of managers seemed satisfied with the quality of the raw
41 the DTW construct, (2) to categorize the responses materials received. They emphasized that only quality
42 according to the dimensions and interpret the products were produced and in cases of any deviation,
43
44
45 TABLE 2
46 Profile of Interviewees
47
48 Total Experience
49 Branch Interview Partners in the Plant
50
Wadia, Gujarat Associate Vice President, Manufacturing 24 years
51
Wadia, Gujarat Deputy General Manager, Production 22 years
52
Wadia, Gujarat Manager, Production 1.5 years
53
Wadia, Gujarat Manager, Logistics 10 years
54
Sukhroli, Mumbai Associate Vice President, Sales 22 years
55
Sukhroli, Mumbai Manager, Marketing 20 years
56

Xxxx 2014 5
 Journal of Supply Chain Management

1 TABLE 3
2
Capacity-Related Perceptions
3
4 Responses Related to Capacity Our Explanation of the Responses
5
6 Department: Production
7
Associate Vice President
8
There is a high demand for Soporic Acid and a As a senior executive, he reflects that over the
9
new plant is being set up to resolve the capacity longterm, with the new plant in operation, capacity
10
issue. will not be a critical issue for Soporic Acid.
11
The situation is not “hand-to-mouth”. However, his long previous experience with
12
A relatively high finished-goods inventory is Fatty Alcohols makes him generalize the
13
maintained. attributes of fatty alcohol to other products.
14
We knew Soporic Acid had a hand-to-mouth
15
supply chain. The high finished goods
16
inventory is basically kept in fatty alcohols
17
and not in Soporic Acid!
18
Deputy General Manager
19
Capacity is enough to meet internal consumption. Through his long experience in Manufacturing,
20
Only a small percentage of the product is sold, so and being in charge of both fatty acid and
21
no demand-supply gap exists. alcohols, he understands that Soporic Acid is
22
No inventory is kept, neither raw material nor an ingredient of alcohol. This shapes his
23
finished product. perception that a large proportion of Soporic
24
No machine shutdown leading to stoppage, Acid produced is consumed internally. His
25
continuous production role is limited to the production, packing, and
26
dispatch.
27
Tracking the fate of the product is
28
out of his scope. Actually most of it is sold;
29
only some is consumed internally.
30
Stoppage is not common as they go for preventive
31
maintenance and have standby equipment.
32
Manager
33
Capacity is enough to meet internal consumption. His perception is also shaped by the same
34
Demand is stable and no inventory (raw material belief and understanding as DGM Production,
35
or finished product) is kept. with whom his office is co-located. Since the
36
demand is stable, there is no need for
37
inventory. Only a small proportion is sold
38
outside and rest is consumed internally.
39
40 Department: Marketing & Sales
41
42 Associate Vice President
43 Inadequate capacity is a major issue. Being in direct contact with the customers, he
44 No knowledge about the internal consumption of “feels” the capacity constraints but he has no
45 Soporic Acid. idea about the internal consumption
46 Believe there is some inventory possibilities. The hand-to-mouth supply chain
47 Believe there are regular machine shutdowns for shapes his perceptions that a reasonable
48 maintenance leading to production stoppage. amount of raw material as well as finished-
49 goods inventory is kept for emergencies.
50 Strongly believes that Wadia plant also has
51 regular stoppage and maintenance. However,
52 preventive maintenance with standby
53 equipment obviates such stoppages, as is the
54 case in Wadia.
55 (continued)
56

6 Volume 0, Number 0
 Departmental Thought Worlds 1

1 TABLE 3 (continued)
2
3 Responses Related to Capacity Our Explanation of the Responses
4
Manager
5
Soporic Acid faces capacity shortage. Capacity barely exceeds demand. The system
6
Plant stoppage due to machine failure has very cannot handle variability, and delay in
7
high impact over customer satisfaction delivery hurts customer trust. Production
8
people, however, cannot see this and
9
perceive the capacity to be adequate.
10
Since the capacity is limited and the supply
11
chain is in a hand-to-mouth situation, with
12
high demand, any failure leads to delay.
13
14 Department: Logistics
15
16 Manager
17 To adjust the excess demand with limited capacity, Being in logistics, he is responsible for moving
18 some of the production processes are the materials to the other plants for the
19 outsourced. outsourcing process and delivering the semi-
20 Minimum inventory is kept for safety. finished product back to the plant. While
21 Production does not realize capacity
22 limitations and marketing perceives
23 production to be plant’s concern, they seem
24 ignorant about the overall outsourcing
25 process.
26
27 the products are blended with the higher quality production people as very low, associating only direct
28 products. Low-quality products are never sold. Market- costs due to the delay. However, Marketing sees this
29 ing managers however were skeptical about the qual- as a high cost because it also affects the trust and con-
30 ity, both of raw materials and final products and fidence of the customers. In addition, they worry that
31 claimed that the low quality products are sold to the customers might split the total contract amount
32 external customers. The underlying interpretation is between them and a competing firm, resulting in loss
33 illustrated in Table 4. Similar differences in percep- of business; this has a high indirect cost impact. The
34 tions related to Availability (which reflects raw mate- transport vehicle availability is a critical issue in a
35 rial and transport vehicle availability) and hand-to-mouth supply chain like that of Soporic Acid.
36 Productivity (which reflects machine utilization, lead A single day’s delay due to unavailability of vehicles
37 time, byproduct utilization, and equipment mainte- might have a low relevance to the production unit
38 nance requirements) were observed in light of DTW and they can still rate it as an efficient system, yet this
39 as illustrated and interpreted in Tables 5 and 6, is viewed as a crisis and an inefficient system by Mar-
40 respectively. Effectiveness is the overall understanding keting. These differences are along expected lines,
41 of customer satisfaction criteria, penalty and detention because they seem to be linked to their daily work
42 (delay) cost, and influence of workplace layout. Orga- responsibilities.
43 nized along these themes, the summary responses and Apart from inter-department differences, the study
44 why those responses might be occurring are presented also indicated a manager’s past experience shapes his
45 in Tables 3–6. Their individual cost perceptions are views and influences his decisions and priorities in his
46 summarized in Table 7. current role, as in the case of AVP (Manufacturing),
47 Key observations from the analysis follow. There are whose long previous experience in alcohol production
48 several costs that are interpreted by the managers in tended to carry forward to the acids division (see
49 different departments in different ways. As discussed Table 3). Such biases can to lead to poor decisions.
50 above, quality as perceived by the marketing team var- The current environment also has a large influence
51 ies from the quality perceptions of the production on perceptions. When a manager joins an organiza-
52 team. To Production, quality ideally means defect-free tion, he tries to absorb the surrounding knowledge.
53 manufacturing whereas quality perceived by Marketing With time he develops personal relationships with his
54 is fulfilling individual customers’ specifications. Deten- surroundings and unknowingly tends to develop
55 tion costs are the cost incurred out of delay in ship- biases based on his understanding and the influence
56 ping (including demurrage) and are interpreted by the of others surrounding him. These biases shape his

Xxxx 2014 7
 Journal of Supply Chain Management

TABLE 4
Quality-Related Perceptions
1
2 Responses related to Quality Our Explanation of the Responses
3 Department: Production
4
5 Associate Vice President
6 Raw material quality is a concern Being the head of the Production unit, he is able to see the
7 but minor deviations are larger picture and understand the difficulty in actually detecting
8 knowingly accepted with a rebate. quality of material. Customer-demand being high, he also has to
9 Production never goes out of tradeoff sometimes and accept materials with minor quality
10 specifications. variations as any such rejection delays the entire supply chain.
11 After stoppage, once the machine Design changes are made as and when customers experience
12 is restarted, it takes time to reach variations and impurities in the products and update the
13 stable temperature, but it does production team.
14 not affect quality of the product. Being in Production, he can see such design changes happening
15 Quality is never compromised. and this makes him realize that there is no other problem.
16 Inferior quality product is never However, new quality issues are reported by the customers to
17 sold. the marketing team which might not be reported to production
18 immediately.
19 Being in production, he sees quality as an absolute criterion
20 where inferior good are rejected. However, standard products
21 with minor variations with defined standards of specific
22 customers may be sold to other customers which marketing and
23 sales may decide.
24 Deputy General Manager
25 Raw material quality is always He gets a continuous flow of raw materials to produce quality
26 good. products. However, to satisfy some customer specifications, it
27 No problems with the production may require some variation to the usual raw materials, probably
28 process, only quality products are of a higher quality, which he might not perceive to be quite
29 produced, always meet the relevant.
30 specifications. The production process being robust and recently redesigned to
31 In case quality of product cater to customer specification, he perceives that the
32 deviates, it can be blended with specifications are always met and there is no quality issue.
33 the good quality products.
34 Manager
35 Quality Control ensures that raw Being new in the department, he had not himself seen any major
36 material quality is always good. issues with the raw materials and trusts the quality control
37 No problems with the production process. In reality, there are problems that quality control team
38 process, only quality products are cannot detect.
39 produced. Being in the production silo, he is also unaware of some of the
40 specific customer requirements. He thinks in terms of absolute
41 quality whereas marketing sees quality as defined by individual
42 customers in their technical specifications.
43
Department: Marketing & Sales
44
45 Associate Vice President
46 When production deviates from Low quality for one customer might be right quality for
47 customer specifications, another, depending on specifications. Once a customer
48 alternatives are thought of. rejects a product, Marketing looks for other customers
49 Production people try to or blends it with better quality product.
50 understand Being in the Marketing team he sees quality through the
51 quality only through lens of customers’ requirements, which vary from one
52 their existing knowledge. customer to another. Thus unlike the production team,
53 Some solutions are identified but it is difficult for him to conclude that there are no quality
54
55 (continued)
56

8 Volume 0, Number 0
 Departmental Thought Worlds 1

1 TABLE 4 (continued)
2
3 Responses related to Quality Our Explanation of the Responses
4
it is up to the capability of the issues with the product.
5
production Being distant from the actual customers production
6
to implement and rectify. people often find difficulty in understanding the quality
7
requirement and build on their existing knowledge to
8
get the best solution instead of rethinking over critical
9
issues as unknown impurities and anomalies.
10
Manager
11
Raw material quality varies. Marketing people look at problems from their experience
12
Variations from the desired and general interactions with production people as well
13
specifications as the customers. He understands the magnitude of
14
lead to rejection by targeted specification related dissatisfaction among the customers
15
customers. and tries to rationalize by visualizing through his self-
16
In such cases, sell rejected constructed reasoning of the apparent problem. He also
17
products to other customers. realizes that Quality is a relative term, where low quality
18
only means that it does not meet a particular customer’s
19
specification and thus on rejection tries to find new
20
customers whose requirements meet the on-hand rejected
21
product. Production views low quality and rejection on an
22
absolute term and strongly reflects that no low quality
23
product is sold. In case there is a low quality issue it is
24
either internally consumed or blended.
25
26 Department: Logistics
27
28 Manager
29 Raw material is mostly OK, His perceptions are largely shaped by his role and
30 and material rejection is rare. influence of the production department as his office is
31 located in the same premises as DGM and Manager
32 Production. Being in charge of logistics he is not very
33 well qualified to understand quality, especially through
34 the marketer’s lens and from the informal discussion
35 with the production team perceives quality in absolute
36 scale and blending to be the only solution.
37
38 perceptions and affect his decision abilities and priori- efficiency, and raw material requirements and avail-
39 ties. In this study, the logistics manager who worked ability. However, he might not have first-hand infor-
40 within the same premises as the production managers mation on customer satisfaction and may perceive its
41 reflected similar perceptions. level and significance from the indicators in the lim-
42 A production manager is primarily concerned about ited scope of his department and perceptions of his
43 the total production, which is directly associated with colleagues. He might assume high customer satisfac-
44 the raw material availability. We may interpret part of tion based on his production efficiency and quality
45 his understanding as absolute truth, where he is consistency.
46 directly involved in the process and acquires knowl- Similarly, a marketing manager belongs to an envi-
47 edge through observations and experiences. The other ronment where customer satisfaction is of utmost con-
48 part of his understanding is primarily shaped by the cern. He estimates and experiences the severity of the
49 influence of the environment he is in and not through problem when a customer rejects an order, and his
50 his personal experiences and observations. These per- decisions reflect his priorities on meeting customers’
51 ceptions that he develops from his surroundings may quality requirements. He associates business profit-
52 not be absolute truth, and yet he believes in all of it ability with his performance in selling. Predicting
53 as part of the reality. This possible mismatch between demand and balancing quality supply with timely
54 reality and illusion causes biases and is reflected in delivery is a challenge to him, and this makes him
55 his decision priorities. A production manager is more critical of the performance of the other depart-
56 expected to know about production capability, plant ments down the value chain. His perceptions tend to

Xxxx 2014 9
 Journal of Supply Chain Management

1 TABLE 5
2
Productivity-Related Perceptions
3
4 Responses Related to
5 Productivity Our Explanation of the Responses
6
7 Department: Production
8
Associate Vice President
9
Product and byproduct balance Marketing fears that increasing demand for Soporic Acid leads to
10
is done well by the Marketing accumulation of the byproduct, with high storage cost. However,
11
department. those working under him fail to appreciate this dilemma.
12
Deputy General Manager
13
Byproducts are internally The byproduct is also internally consumed. Production is aware of
14
consumed, so disposal or this but hold the view that they should focus on only Soporic
15
selling of the excess Acid not on the byproduct, as it will be consumed in other
16
byproducts formed in the products.
17
process of producing more Machine corrosion is a problem in old machines and equipment.
18
Soporic Acid to cater to high Soporic Acid plant being relatively new, no such issues arise.
19
customer demand is not an
20
issue.
21
Machine failure does not occur
22
and corrosion is not a problem
23
as it is a new product, and the
24
equipment is new.
25
Manager
26
Byproducts from the production Like his senior, he too had no clue about the dilemma of balancing
27
of Soporic Acid are internally the production in relation to byproduct.
28
consumed. Being relatively new in the company he has never witnessed any
29
Machine failure never happens machine failure or corrosion issues and thus perceives that all
30
and corrosion is not a problem. work well.
31
32 Department: Marketing & Sales
33
34 Associate Vice President
35 Difficult to get the right balance His primary objective is to maximize revenue. He worries that
36 as more Soporic acid failure to sell all the byproduct will incur storage cost and may as
37 production leads to more well add on to the opportunity cost, due to its much smaller
38 byproduct production leading demand.
39 to an additional pressure of With his limited scope and exposure into production operations,
40 finding more customers for the he does not realize that the plant has preventive maintenance
41 byproduct. and standby machines help avoid any plant stoppage specifically
42 Plant stoppage due to for Soporic Acid. However his observation is true for some of the
43 maintenance is a regular other products.
44 phenomenon.
45
Department: Logistics
46
47 Manager
48 Stoppage due to Maintenance is From his experience in other plants he tends to generalize reality
49 about 3 weeks per year. and reach a false conclusion. The production plant for Soporic
50 Corrosion is an issue. acid being relatively new, they do not have such maintenance
51 issues or corrosion.
52
53
54 be shaped by his expectations and general estima- various costs involved in the supply chain, and prod-
55 tions. These interpretations thus explain how and why uct quality differently than their production and logis-
56 marketing personnel perceive transport availability, tics counterparts.

10 Volume 0, Number 0
 Departmental Thought Worlds 1

1 TABLE 6
2
Availability-Related Perceptions
3
4 Responses Related to
5 Availability Our Explanation of the Responses
6
7 Department: Production
8
Associate Vice President
9
Raw materials are imported, His thoughts are largely influenced by the attributes of alcohols (in
10
so there are some availability which he worked previously) and he unknowingly generalizes those
11
limitations. attributes to other products including Soporic Acid. Raw materials for
12
The company has contracts Soporic Acid are locally supplied and usually availability is NOT a
13
with the transporters, so problem.
14
vehicle availability for He seems satisfied with the existing contracts and is overlooking the
15
finished products is a frequent problems in actual delivery. Temporary unavailability or
16
nonissue. delay of 1–2 days does not mean much to him. However, for
17
Marketing even a few hours’ delay is a significant loss.
18
Deputy General Manager
19
Raw material availability is not Being in a senior position in production, continuously producing
20
a problem due to having Soporic Acid, he understands that raw material availability is majorly
21
multiple suppliers. balanced with dependence on multiple suppliers.
22
All deliveries are pre-planned Similar to the AVP’s view, noted above
23
and logistics is not a
24
problem.
25
Manager
26
Long-term relationship with His past experiences shape his views of single suppliers with long-term
27
suppliers and raw material relationships for effective control over supplies, whereas there are
28
availability means, there is multiple smaller short-term suppliers who cater on need-basis for
29
no problem. Soporic Acid.
30
Transport vehicles are always Quite similar to AVP and DGM’s views noted above
31
available.
32
33 Department: Marketing & Sales
34
35 Associate Vice President
36 Suppliers of the right quality His customer orientation makes him worry about the right raw material
37 are scarce. and hence product quality, far more than that Production does.
38 Transport vehicle availability is Transport vehicle availability to him means “at that moment”. Any
39 an issue. deviation from this is a concern to him.
40
Department: Logistics
41
42 Manager
43 Raw material availability is an The co-located production department influences his perceptions.
44 issue but managed well. Being logistics in-charge he too finds vehicle availability not to be a
45 Transport vehicles are always problem, however the same explanation that the meaning and
46 available. priority of “always available” for him is different from that of the
47 marketing people.
48
49
50 Departmental thought worlds in this context may possible mechanisms (Nonaka & Krogh, 2009). This
51 have three possible impacts. First, the information/ prevents accurate evaluation of the entire business
52 understanding of the processes that each department process, which is critical for SCM. Second, managers
53 is carrying is heavily dependent on the environment are convinced of the high performance of their own
54 in which the manager operates. Different departments departments and attribute failures to other depart-
55 have certain perceptions engrained within that pass ments. For example, Marketing perceived production
56 on person-to-person over time through any of several inefficiency to be a major concern even when produc-

Xxxx 2014 11
12
56
55
54
53
52
51
50
49
48
47
46
45
44
43
42
41
40
39
38
37
36
35
34
33
32
31
30
29
28
27
26
25
24
23
22
21
20
19
18
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1

TABLE 7
Summary of Perceptions of Various Costs with Reference to Soporic Acid 4

Transportation Maintenance Production Detention

Inventory Cost Cost Cost Cost Cost
Production Department
AVP Low inventory. Low compared to Low, it being a High Low, relative to total revenue
Perceives low cost production cost new plant
DGM Thinks no inventory exists; Same as above Same as above Same as above Same as above
hence zero cost
Mgr Same as above. Same as above Same as above Same as above Same as above
Logistics Department
Mgr There will be It is neither very Medium, influenced Unaware of the Low, relative to total revenue
a small inventory low nor very high by production people cost structure
Marketing and Sales Department

Volume 0, Number 0
AVP Some inventory is required
given the demand
fluctuations
It is neither very Relatively high as he Perceives it to be High, as delays affect customer
low nor very high faces quality issues low as for other satisfaction
products
Journal of Supply Chain Management

Mgr Same as above Same as above Same as above Same as above Same as above
 Departmental Thought Worlds
1 tion-related delays were insignificant. This is not nec-
2 essarily capricious behavior; it was simply their per-
3 ception. Third, difficulties arise when managers,
4 bound by their DTW, take actions to overcome the
5 perceived difficulties. For example, a marketing man-
6 ager who perceives inefficiency in the production
7 department might tend to over-order to minimize
8 production uncertainty risk; this mechanism has
9 recently been referred to as coordination stock (Croson,
10 Donohue, Katok & Sterman, 2014). For the same
11 reasons, he might well overestimate transport require-
12 ments, or quality levels, or Production may overesti-
13 mate raw material requirements. All of these result in
14 inefficiencies (for example, inventory pile-up in case
15 the inflated orders are fulfilled) and links DTW to its
16 financial impact.
17 This first study developed the OSM DTW construct
18 and established its presence in rich contextual detail.
19 The study did not, however, attempt to quantify it.
20 Apart from quantification of DTW, by case replication
21 logic it might also seem worthwhile simply to study
22 DTW in a different context and in a different culture
23 and organizational setting. With these objectives in
24 mind, we move to Study 2.
25
26
27 STUDY 2: MAADER
28 In accordance with the second objective, which is to
29 test and measure the existence of OSM DTW in an
30 independent context, we adopt a positivist approach.
31 The case study chosen was Maader, Iceland, a world-
32 leading food processing industry equipment manufac-
33 turer. It was chosen on the premise that we (the
34 research team) ought to know the “real world” or
35 “true” parameters (to the extent possible, commensu-
36 rate with the chosen research methodology) of a key
37 OSM problem facing the managers of the organiza-
38 tion. This would allow us to compare the actors’ DTW
39 across departments and then compare it the “real
40 world.” Maader operates 15 subsidiary companies
41 spread across Australia, Europe, and North-America
42 and had annual revenue of 265 Million Euros. Our
43 study focused on Maader’s, Reykjavik, Iceland plant.
44 We were previously involved in a project aimed at
45 advising Maader on their logistics strategy—whether
46 to move from ocean to predominantly airfreight. The
47 recommendations were borne out of a detailed analy-
48 sis of total cost of ownership (TCO) for purchased
49 parts. Thus, we knew the “real world,” i.e., actual cost
50 parameters. This, and the fact that Maader was a B2B
51 industrial manufacturer like in Study 1, led us to
52 choose this case study. The study involved participant
53 observation as a data collection technique (Platt,
54 1992) up to this stage, while developing the intrica-
55 cies of the TCO model (the findings of which were
56
Xxxx 2014
1
shared with the company executives only after con-
cluding Study 2, thus protecting its validity).
The key business processes in the company are: prod-
uct development (from a concept to a new product
design), manufacturing (from receipt of production
order to shipment), marketing and sales (from market-
ing to acceptance at the customer site), and service
(from customer service request to sign-off). Production
is “engineer-to-order”. It broadly follows the following
sequence: sales managers, armed with some prior
knowledge of product features and delivery capabili-
ties, initiate the sales call and create a contract with cus-
tomers 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 fur-
ther action. Delivery dates for all the components are
then set to meet the production schedule. The inven-
tory 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 exten-
sive informal interactions during the preceding months.
The structured interviews2 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 logis-
tics manager (denoted as M1) as an illustration. Simi-
lar results are available for all seven managers,
2
The interview protocol was provided during the peer review
process and is available from the first author upon request.
13
 Journal of Supply Chain Management

1 TABLE 8
2
Maader (Study 2) Managers’ Responses to Cost-Drivers
3
4 Cost-drivers (grouped) M1 M2 M3 M4 M5 M6 M7
5
6 Purchasing price/Ordering/Unit price 50% 10% 12.5% 5% 12%
7 Supplier selection /Supplier 40% 25% 15% 30% 18%
8 relationship /Contracts/supplier
9 coordination / Risks
10 Inventory costs/Inventory 2.5% 20% 10% 15% 50% 20% 18%
11 management/Holding cost/ Handling
12 Stockout price/Loss of customers 2.5% 35% 12.5% 10%
13 Freight cost /Transportation cost 2.5% 5% 20% 12.5% 5% 1%
14 Handling 2.5% 30%
15 Product design/Development cost 50% 15%
16 Interest cost 30% 18%
17 Delivery time 35%
18 Problems with quantity 12.5%
19 Manufacturing (rework) 30%
20 Service (after sales) 18%
21 Total 100% 100% 100% 100% 100% 100% 100%
22
23
24 although for the sake of brevity we are not including transportation cost, inventory holding cost, and cost
25 them here and present only the overall findings. of ordering the product and asked her to rate the
26 M1 heads the shipping department that has two other extent to which all of these cost-drivers contribute to
27 employees and is responsible for handling inbound the TCO. True to her initial estimate of the value of
28 and outbound transportation. As might be expected, the purchase price, she estimated it to constitute 90
29 she immediately identified the transportation cost, doc- percent of the TCO while she considered transporta-
30 umentation, and all of the costs that are directly related tion cost to be only 5 percent, inventory holding cost
31 to her. She also realized that there are other costs such to be 3 percent, and purchasing overhead at 2 percent
32 as inventory holding cost. She rated the purchasing (See Table 9). This comes as no surprise since her
33 price along with supplier selection as the most impor- main concern during regular work was with the trans-
34 tant cost-drivers, covering 90 percent of the costs. She portation cost, and she realized how low the transpor-
35 rated holding cost as being more important than trans- tation cost is compared to the purchase price of the
36 portation cost even though her main responsibility is product.
37 transportation cost (see Table 8). Similar interviews were carried out with the other
38 We then asked M1 to identify cost-drivers in differ- six managers. Table 10 summarizes the cost-drivers
39 ent departments in order to identify opportunities for identified by various managers, and their importance
40 lowering costs. M1 identified only the purchasing ratings. The numbers in brackets indicate the number
41 department as adding costs through their employees. of respondents who identified the items.
42 Inventory holding cost was of some concern to her, The results show that inventory holding cost was a
43 and then in particular the cost of warehousing and relevant cost-driver for all managers, but the level of
44 how this product needs special handling. M1 also pre- importance was perceived quite differently. Another
45 ferred buying the Sensor Lamp in small lots: “I con- noticeable cost-driver was transportation cost. It was
46 sider it to be more important to purchase the Sensor mentioned in six out of seven interviews, but in
47 Lamp in a batch of 3–5.” It is obvious that M1 had almost all cases they were considered to be of low
48 some knowledge of the importance of inventory hold- importance and low value. Supplier relationship was
49 ing costs, but it might be biased due to the knowledge also a popular cost concern and all managers consid-
50 of the high value of the product compared to its ered supplier relationship to be very important in
51 transportation cost. Her knowledge of the high value lowering the total cost of manufacturing. This seems
52 of the product led her to place emphasis on the high to be the prevalent idea among all managers: most of
53 inventory holding rather than to focus on transporta- the problems can be traced to a bad supplier or a
54 tion costs. wrong supplier delivery. Next, the respondents were
55 Next, we asked M1 to estimate TCO of the product. asked to assign a few cost-drivers and identify those
56 E informed her that TCO includes the purchase price, that could be improved in order to lower the TCO. As

14 Volume 0, Number 0
 Departmental Thought Worlds 1

1 Table 11 shows, there are many cost-drivers that can

Note: 19 refers to sea freight; small, frequent orders 129 refer to the proposed airfreight mode. Some managers declined to answer for 129 year (which was a hypothetical
Coeff.
Var.
2 and need to be improved in order to lower TCO.

.18
.44

.72
.45
3 Statistics of responses There seems to be a common understanding of
4 which cost-drivers within the company could be
5 improved regarding supplier relationship, freight cost,
Mean
74%

19%
5%

3%
6 carrying cost and planning. These are all easy-to-iden-
@ 13/year

7 tify cost-drivers, some of which have high leverage on

8 7.5% improvement opportunity. However, as Table 9
9 shows, a mere acknowledgement by managers of the
Max

5%
90%

10 35% existence of certain cost-drivers is not an indication

11 that they all agree on the relative importance of these
12 cost-drivers; they can disagree substantially!
Total Cost of Ownership for Sensor Lamp with Different Frequencies of Ordering

60%
1–2%

3%
1%

13 When they were asked if they consider transporta-

Min

14 tion costs or inventory holding cost more important,

15 the answers were always toward inventory holding
16 cost. But two respondents said that the inventory
123
year
95%
2%

3%
0%
Real world

17 holding cost on a Sensor Lamp was very little due to

values

18 high turnover rate on the specific product.

year

19 There seems to be an overall concern from the man-

70%
1%

29%
0%
13

20 agers on the high inventory holding cost at Maader.

21 This concern is reflected in both component stockouts
123
year
87%
5%

5%
3%

22 and lack of cash flow coming from high investments

23 due to high inventory value. Most of them agree that
M7

24 increasing the purchasing turnover rate by increasing

year

3%

2%
60%

35%
13

25 their DHL shipping would result in lower inventory

26 cost and almost all of them consider holding cost
27 higher than transportation cost.
TABLE 9

7.5%

2.5%

28 The managers were asked to estimate TCO com-

year
70%

20%
M5
13

29 prised of four cost-drivers: product price, purchasing,

30 transportation, and inventory holding cost. Table 9
31 reveals the general perception among respondents that
year
89%
5%

5%
1%

32 the product price is by far the highest of the cost com-

M4
13

33 ponents, which is consistent with the actual figures we

34 (the research team) had calculated. Estimates of trans-
year
123

35 portation cost are rather similar, with all responses

7%

8%
5%
80%

36 lying in the low range of 3–7.5 percent. What is more

M3

37 interesting is that the managers have quite a different

year

38 perception of the inventory holding cost, ranging

65%
3%

30%
2%
13

39 from 3 percent to 35 percent. The standard deviation

40 at 13.4 can be considered very high, which shows
41 how the perception of inventory holding cost varies a
123
year
88%
4%

3%
5%

42 lot between managers. These results support the

M2

43 insight from Table 10.

62%
1–2%

30%
5%

44 The results indicate that the inventory manager and

year
13

45 the transportation manager perceived their costs dif-

question), citing inability to answer.

46 ferently. The transportation manager perceived the

47 inventory holding cost to be less important and of
5%

3%
2%
90%
year
M1
13

48 less value than did the inventory manager. They both

49 were still very concerned that the inventory turnover
50 rate should be higher than today, and they were both
Transportation

Inventory cost
Product price

51 aware of how they would proceed in order to increase

components

overheads
Purchasing

52 the turnover rate. Both of them mentioned that in

53 order to reach the goal of increasing the turnover rate
54 they need to make sure that the supplier relationships
cost
Cost

55 are strong and that they can support such change.

56 This is in line with current OSM literature, which

Xxxx 2014 15
 Journal of Supply Chain Management

1 TABLE 10
2
Cost-Drivers of Sensor Lamp
3
4 Importance
5
6 Very High High Med Low
7
Product design [1] Purchasing price [1]
Inventory holding [3] Transportation
8
cost [4]
9
Inventory holding [1] Supplier selection [1] Stockout cost [2] Handling [1]
10
Delivery time [1] Supplier relationship [4] Forecasting [1] Purchasing
11
Cost-driver overheads [2]
12
Investment cost [2] Transportation [2] Stockout cost [1]
13
Manufacturing yield [1] Purchasing Inventory holding [1]
14
overheads [1]
15
Loss of customer [1]
16
Inventory holding [2] Design cost [1]
17
18
19
20 TABLE 11
21 Cost-Drivers Regarding Improvement Possibilities within Each Department
22
23 Cost-Drivers at Maader
24 Purchasing Logistics Inventory Manufacturing
25
26 Supplier relationship [M2,6,7 ] Freight cost [M1–4,6] Number of SKU’s [M6] Planning [M1–7]
27 Supplier selection [M1–4,6,7] Efficiency [M4] Unit price [M7, M4] Education [M7]
28 Cheap unit price [M3–6] Planning [M6] Safety stock [M7] Production system
29 Handling [M1,2,3,7] Handling [M1,M2] Turnover rate [M2] Redesign [M4]
30 Reorder cost[M7] Customs [M1] Investment [M4] Yield [M1, M3]
31 Supplier base [M4, M5] Documentation [M1] Carrying cost [M1–7] Work in process [M3]
32 Service [M7] Transportation [M3, M5] Stockout cost [M5]
33 Contracts [M2, M4] Cash flow [M3, M4]
34 Order quantity [M5] Housing [M1, M3]
35 Quality [M3] Special handling
36 cost [M1–3]
37 Efficiency [M7] Slow moving items [M6]
38 Time of staff [M1]
39
40
41 argues the need for improved supplier relationships in We would expect the financial manager’s response
42 order to enhance overall supply chain efficiency and to be more balanced (i.e., not tilted toward either the
43 reduce associated costs (Lambert, 2004). customer-centric metrics or the supplies/supplier-cen-
44 On the basis of these results, we can conclude that tric factors), but it appears that he was quite con-
45 managers with different functional responsibilities cerned about the inventory value, and he considered
46 perceive costs differently in the organization. Manag- inventory management of high importance. A possible
47 ers who were closer to the customer perceived inven- explanation for this is that investment cost was
48 tory holding cost to be less relevant to the TCO, while directly related to inventory holding cost, whereas
49 managers who were closer to the suppliers perceived customer-centric matters (e.g., delayed deliveries to
50 the cost to be much higher, plausibly because they customers) would translate into financial figures only
51 had a more accurate image of the inventory holding after a long delay. Such behavior is consistent with
52 cost. Interestingly, all of the managers had rated dif- salience/immediacy bias (Camerer & Loewenstein,
53 ferent cost-drivers the most important (Table 10). 2003).
54 From this, it can be argued that ceteris-paribus, organi- The differences in DTW, operationalized through
55 zational roles influence perception of reality systemati- cost-perceptions in this study, can be summarized as
56 cally. follows. All managers responded similarly that

16 Volume 0, Number 0
 Departmental Thought Worlds
1 increasing turnover rate would decrease backorders
2 but this would work only if the suppliers were up to
3 the task and delivered as promised. Most of them also
4 considered maintaining strong supplier relationships
5 as the best way to decrease backorders. Almost none
6 of them considered increasing inventory levels to be a
7 good way to reduce backorders, and almost everyone
8 thought that the focus should instead be on improved
9 supplier relationships first and foremost, which would
10 in turn facilitate increasing frequency of shipments.
11 Top management considered manufacturing efficiency
12 to be of very high importance. Lack of items and con-
13 sequent production disruptions were attributed to lack
14 of planning and coordination with suppliers.
15 In summary, the results show that managers within
16 the same organization can perceive the costs drasti-
17 cally differently. Even when everyone verbally agreed
18 that inventory holding cost is an important cost-driver
19 to Maader’s operations, differences in their true per-
20 ceptions manifested when we asked them to rank or
21 quantify them.
22
23
24 DISCUSSION
25 Analytical OSM literature pays scant attention to
26 how managers perceive problems in their supply
27 chain or their cost parameters. It simply assumes
28 managers know these things. Is this premise tenable
29 in the real world? Simon (1986), who introduced the
30 notion of bounded rationality, argues it is not. Today
31 most researchers would agree with him that managers
32 have a limited view about their world, and the real
33 world is simply too complex for managers to assimi-
34 late in its entirety (Simon, 1986; Sterman, 2000). That
35 being the case, the advanced model-based solutions in
36 mainstream research literature would only be relevant
37 to the extent that the assumption that cost parameters
38 are known uniformly organization-wide was correct.
39 In this research, through two independent studies fea-
40 turing different problems (breakdowns and TCO), we
41 have shown that managers differ significantly in their
42 OSM DTW. From this, we recommend that analytical
43 OSM scholars explicitly factor in the managerial per-
44 ception of problem parameters instead of relying on
45 assumed values.
46 Study 1 develops the OSM DTW construct and dem-
47 onstrates a methodology to operationalize the con-
48 struct. This may help future researchers by pointing
49 out how and where to start identifying and measuring
50 DTW in their chosen organizations. In brief, the meth-
51 odology we adopted in Study 1 (and Study 2) was to
52 identify an important problem facing the organization.
53 The problem must be such that all major managers
54 would have thought about it at length, so that they are
55 in a position to give informed, if not instant responses.
56 The problem must then be broken down into its
Xxxx 2014
1
dimensions. A good starting point would be the com-
pany top management, who would frequently be
involved in permitting access to the company. By treat-
ing 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, dif-
ferent managers may weigh these costs differently
depending on their current organizational roles. It is
clear that the perceptual differences found in the pres-
ent study fall within the Intentions category; our con-
tribution 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 val-
ues may differ across departments leading to divergent
solutions. Within the intentional versus unintentional
biases framework (Oliva & Watson, 2009), the percep-
tual 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 develop-
ment of functional “silos,” which means a lack of
appreciation for and integration between various func-
tional 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 depart-
ment-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 infor-
mation, or more generally, any other operational cost
parameter) is closer to the true value than the infor-
mation 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,
17
 Journal of Supply Chain Management

1 2006). Facilitating grapevine (informal communica- Bendoly, E., Donohue, K., & Schultz, K. L. (2006).
2 tion) at the workplace is another specific step the top Behavior in operations management: Assessing
3 management could take toward this direction. recent findings and revisiting old assumptions.
4 This may be an interesting line of inquiry for future Journal of Operations Management, 24 (6), 737–
5 research to test if the differences in perceptions indeed 752.
Boyer, K., & Swink, M. L. (2008). Empirical elephants –
6 reduce post-intervention. Note that contrary to com-
Why multiple methods are essential to quality
7 mon expectation, the mere absence of, or reduction
research in operations and supply chain manage-
8 in, DTW is neither necessarily a “good” or “bad” ment. Journal of Operations Management, 26 (3),
9 thing. Different orientation between marketing and 337–348. 5
10 sales managers has a positive impact on market per- Cachon, G. P. (2003). Supply chain coordination with
11 formance whereas different competencies have a nega- contracts. In A. G. de Kok & S. C. Graves (Eds.),
12 tive impact (Homburg & Jensen, 2007). We Supply chain management: Design, coordination and
13 conjecture that a similar pattern would hold across operation (pp. 229–340). Amsterdam, North Hol-
14 different functions. Thus, a more nuanced understand- land: ????????????. 6
15 ing is required about what kinds of differences help, Cachon, G. P., & Lariviere, M. A. (2005). Supply chain
16 and what kinds hamper. This could be a fruitful area coordination with revenue-sharing contracts:
Strengths and limitations. Management Science, 51
17 for further research.
(1), 30–44.
18 Another observation from our studies is the striking Camerer, C., & Loewenstein, G. (2003). Behavioral
19 contrast between Marketing and OSM personnel in economics: Past, present, future. In C. Camerer,
20 both companies, leading us to wonder if “Marketing G. Loewenstein & M. Rabin (Eds.), Advances in
21 are from Mars and OSM are from Venus.” The former behavioral economics (pp. 3–51). Princeton: Prince-
22 were far more articulate and forthcoming in sharing ton University Press.
23 their views, and the interviews were usually much Cooper, M. C., Lambert, D. M., & Pagh, J. D. (1997).
24 more organized and productive than with Production. Supply chain management: More than a new
25 Production personnel spend most of their time in name for logistics. International Journal of Logistics
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(2014). Order stability in supply chains: Coordi-
28 detailed responses, many of which were not necessar-
nation risk and the role of coordination stock.
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30 differences cause some dysfunctional interactions dur- 176–196.
31 ing inter-departmental meetings and joint decision- Dearborn, D. C., & Simon, H. A. (1958). Selective
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