Impact of Diffusion and variability on Vendor Performance Evaluation

Abstract

In this paper we develop a theory of the impact of behavioral decision making factors on the evaluation of logistic service providers under performance-based logistics and provide an analysis of pilot data collected in an attempt to find support for that theory. Based on a review of the logistic measurement, PBL, and behavioral decision making literature, we form four hypotheses about specific impacts of process measures and variance on performance evaluation in PBL. Our first hypothesis is that the difficulty of relating component-level measures to system-level outcomes will lead to an increased use of non-diagnostic or only partially diagnostic process measures. We further propose that these process measures will produce a dilution effect in which system outcomes are undervalued. Our third hypothesis is that absent clear, observable outcome metrics at the component level, decision makers will increasingly rely on measures of inputs as surrogates for outputs. Our fourth hypothesis is that absent a specific guidance on how to value variance, decision makers will tend to overlook this important component of performance. We report results from a pilot test conducted to develop an instrument that will be used to try to find support for hypotheses two and four.