Inventory Management from a Distance: Psychological Distance and Newsvendor Decision-Making

Product lead time and supplier location are two critical factors influencing supply chain performance. Although lead time and supplier location substantially impact an organization’s operations strategy, newsvendor order quantities should be made independent of these factors, and instead, be based on the critical fractile. Drawing on construal level theory, which posits that psychological distance systemically influences information processing, evaluations, and decisions, we explore if systematic differences in lead time (temporal distance) and supplier location (spatial distance) impacts decision making in the newsvendor problem. In three studies, we show that a farther temporal and spatial distance consistently leads to higher order quantities in a newsvendor game.