Heuristics in Action: When Experience Meets Decision-Making

Ever relied on a mental shortcut only to stumble because it wasn't quite right for the situation? That's precisely what we dive into in this episode about heuristics—those mental rules of thumb that help us navigate complex decisions in supply chain management.

The 80-20 rule, ABC inventory classification, recent supplier performance—these are just a few of the heuristics that make our decision-making more efficient. But there's a shadow side to these mental shortcuts. The availability heuristic makes us overvalue what easily comes to mind. The anchoring heuristic ties us to initial information. The recency heuristic distorts our perspective based on recent events. While these shortcuts save time, they can lead us astray when we apply them without considering the unique context of each situation.

What makes this exploration particularly valuable is the contrast between theory and practice. I share why my most valuable insights have rarely come from polished conference presentations but instead from conversations with people doing the actual work—on production lines, driving trucks, or managing warehouses. This hard-earned wisdom reveals that the answers to our most pressing supply chain challenges often lie not in sophisticated algorithms or consultant decks, but in the experiences of those closest to the daily operations.

Supply chain professionals will find this episode offers both practical awareness of common decision-making pitfalls and a reminder of where to look for authentic solutions. The next time you reach for that comfortable heuristic, pause and ask whether it truly fits your specific situation—your future success might depend on it. Subscribe to Chain Reaction to continue exploring the human side of supply chain excellence.

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Chapters

• 0:00 Introduction to Chain Reaction
• 0:37 Understanding Heuristics in Decision Making
• 6:42 Supply Chain Heuristic Examples
• 11:16 The Limitations of Familiar Approaches
• 14:29 Learning from Workers, Not Managers
• 19:38 Key Takeaways and Episode Closing

Transcript

Tony Hines: 0:02

Hello, tony Hines. Here You're listening to Chain Reaction all about supply chain advantage. Good to have you along, great episode coming your way. It's all about heuristics and experience. Have a listen, have a think and get those gray cells working. When you go back with your teams and talk about what kind of heuristics you use, be interesting to find out, won't it? And whether you're missing out, and some ideas in this particular episode might give you some food for thought on that one. Hope you enjoy the episode. Training Reaction.

Tony Hines: 0:37

Okay, so we were talking about heuristics and all the problems and issues that we might have to solve a problem, but one of our favourite go-to tools is often a heuristic, a heuristic that we've used, perhaps in the past, and we have this availability heuristic in our minds and we know it's there, we're going to go for it and we're going to go to it. But is that always the wise thing to do? Well, maybe not, and we're going to discuss that and I'm going to explain why I think it may not be the right thing to do, and that will give you food for thought. I think one of the big things when I say why not? Mainly because you close down possibilities by going straight to the heuristic. Using that muscle memory and thinking that's going to work, you're closing down other possibilities that may be better solutions for the problem at hand. Now we're all familiar with concepts, our go-to concepts, the things we like, and they turn into a kind of muscle memory that people refer to when you don't have to think about it, but you know what you're going to do and you move to those favourite things that have worked in the past. And in many respects I suppose what they are is heuristics.

Tony Hines: 2:04

A heuristic is a shortcut in a way. Let's delve into it a little bit more and we'll have some ideas of what we mean by heuristics. The mental shortcuts, rules of thumb that help us make quick decisions without deep analysis, and they're super useful for solving problems efficiently. But they can sometimes lead to bias or errors of judgment. For example, the availability heuristic makes us rely on examples that come to mind easily, and when we're in production or operations or supply chains, we'll often think about Pareto's concept. For example, the 80-20 rule. In the warehouse we use it as a means of separating out inventory into A, b, c categories, where 80% of the value is tied up in 20% of the inventory. The next 30% is in the next 10% of inventory and the final 50% is in the final 10% of inventory. And that's what we call ABC analysis and it's a simple rule that we move and act upon to isolate where we're going to get the biggest gain if we focus attention on an area the 80-20 rule. So if we focus on the big value, big ticket value item, then we can certainly have an impact by being efficient with that particular category of inventory.

Tony Hines: 3:35

We use heuristics in all kinds of ways. Take that availability heuristic we actually judge the likelihood of something based on how easily an example comes to mind. For instance, if you've recently seen some news or read something in a newspaper or seen a news story on TV about an aeroplane crash, you might overestimate how common they are. And even though flying is very safe, you might be thinking it's more risky than it is. So that's the danger in jumping to a heuristic simply because it's available. Then there's representativeness heuristics we compare things to stereotypes or prototypes rather than using actual probabilities. For example, if someone wears glasses, loves books, we might assume that they're a professor, even if statistically they're more likely to be in a different profession.

Tony Hines: 4:32

And then of course, there's those anchoring heuristics, where we rely too much on the first piece of information we receive. And this can be used in all kinds of scenarios. And this can be used in all kinds of scenarios. So, for example, if I'm selling something and I mark its price at, say, $500, and we have a negotiation and I later sell it to you for $300, you'll be thinking what a great deal that was. I've just saved $200. But in fact the value of the item you've just been sold might only be worth $200. But because you initially thought it was worth $500 and you negotiated a price down to $300, you thought that was a good deal. And that's the danger of that anchoring heuristic. And of course, sales and marketing will use those sort of anchoring heuristics to draw people in and get the sales at the prices and profit margins that they actually want to achieve.

Tony Hines: 5:28

Then there's the notion of a recency heuristic we give more importance to something that happened yesterday rather than looking at the long-term evidence for the problem we're examining. So, for example, if it rained every day this week, you might believe that it rains all the time. Even if it rained every day this week, you might believe that it rains all the time, even if it's usually dry, and this can be used in all kinds of ways too the recency heuristic. So you've got a problem in a supply chain where deliveries are late for the past two weeks and you begin to investigate and you think, gosh, these deliveries are late all the time, but if you look back at the past six months, they've only actually been late three times in the past three weeks, and before that they've been on time. So it's a recent phenomenon and your judgment or your analysis that it's a serious problem that requires investigation may not be the case. It might be simply that you need to pick up a phone or send an email and see if there's been some problem with a logistics company or a production line or getting hold of a raw material in the past three weeks. But it doesn't mean necessarily that you've got a problem with a supplier, which you might initially have thought because of that recency heuristic. That's kicking in.

Tony Hines: 6:48

And then we look at satisfying heuristics. So instead of looking for the best possible choice, we settle for the first option that meets our criteria, and that's very common in daily decision making. We don't have time to look at every possibility, so we settle for the first one that meets the criteria that we've set and we don't bother looking for the best one. So those are all tied up with this idea that we go to our muscle memory and our heuristic sets to solve a problem. So, although they can be very useful, you need to adopt some caution. And so when we think of heuristics, that's what's happening. A heuristic is just a go-to muscle memory. Because we've had experience of using that heuristic in the past, we tend to go to it and we'll try to use it again. Well, let's just take a look and make sure we've got the idea of heuristics clearly understood in our minds.

Tony Hines: 7:50

Heuristics play a big role in supply chain decision making and they help us all as professionals to simplify complex problems and make faster choices. And I'm going to give you some specific examples focused on supply chains. Let's take a look at that availability heuristic once again. A company might prioritize suppliers based on recent shortages or disruptions rather than actual long-term availability and reliability. If a particular supplier had a recent delay, the company may overestimate the risk and choose an alternative, even if that alternative has historically been less reliable. Let's take a look at the anchoring heuristic again.

Tony Hines: 8:45

When we negotiate contracts, businesses might focus too much on the initial price estimates or shipping times provided by a supplier. For example, if a supplier initially quotes a delivery time of 10 days, the company may expect this timeline for all future orders, even when external factors like holidays or demand spikes affect lead times. So it isn't always the case that we can make a decision based on one swallow. It doesn't make a summer. We need to make sure that any repeat business is going to have the same standard delivery time. And let's take a look at the satisficing heuristic. So, instead of searching for the absolute best supplier, a company might choose the first option that meets the minimum requirements. So, for example, rather than evaluating all possible shipping carriers, a logistics team might stick to a familiar provider that delivers good enough service, rather than hunting for the most cost-effective or fastest option.

Tony Hines: 10:01

And then there's that representativeness heuristic. And then there's that representativeness heuristic. If a business experiences a sudden surge in demand for a product, it might assume similar products will also have increased demand. Even if the spike was due to a unique event like a viral trend or a temporary tariff, this could lead to unnecessary overstocking of related items. And then there's the notion of this recency heuristic. A retailer, for example, might adjust inventory levels based on recent sales trends rather than historical data. If winter coats sold exceptionally well last month, they might increase orders dramatically, without considering that demand could drop as seasons change. Yeah, so, for example, you're just four weeks away from a change in a weather pattern and you've ordered those winter coats for the current conditions that you're experiencing, with the bad weather and the cold, and then you're going to be left with a pretty full warehouse.

Tony Hines: 11:16

So these heuristics have to be carefully thought through. They are useful. They will give us fast decisions. They they often make our lives easier. But we also have to be conscious that there might be issues with the heuristic if we haven't considered all the possibilities of the things that might impact that heuristic.

Tony Hines: 11:43

Now, when we started the episode, I said that we'd talk about experience and heuristics, and we have done so far. But I did also say that those heuristics that help us jump to those quick decisions may not always be as helpful as we might expect. And so what did I actually mean by that? Well, I meant and I think I've explained some of this as we've talked through the episode but I meant that sometimes we reach for the comfortable, what we know, and that muscle memory is availability. It's there. So we think, right, okay, I know about Pareto, this is a Pareto example. Let's jump to Pareto as a solution, and that might not be the best thing to consider in the circumstance. Most times it might be, but occasionally it won't be. And so it's just a word of caution to say to you think carefully about the heuristics you use and apply to particular problems, because the particular problem might not demand the general solution, because it's particular and it might sound simple, and it is. It's particular, it's particular to a context, a time, a place, and therefore that might define a different approach, a different solution, and your comfortable, available heuristic may not work as you think.

Tony Hines: 13:12

Now, if you're not already subscribed to Chain Reaction, I'd suggest you do go along to the website and subscribe, and you can do that on your favorite podcast host or anything you're listening to the episode on. There'll be an opportunity to subscribe. And if you do subscribe to the podcast, of course you'll be first to know when new episodes arrive and you'll be told about them. So that's a good way to stay informed. The other thing you might like to do is go along to my blog, the Tony Hines blog, where you'll find lots of supporting material and articles about some of the topics that we discuss in the podcast and other things as well, and if you're interested in reading those, you can subscribe on the Tony Hines blog and you'll receive an email which will tell you when the new article is published. So that's the advertorial.

Tony Hines: 14:08

Well, you might think this is strange, but I go to conferences and I listen to people and I go where there are professionals and listen. But quite often, I have to say, the networking opportunities are good, but some of the content of what's being talked about and some of the ideas leave me cold. They don't really tickle my brain cells and I don't know what it is about it. There seems to be a kind of group think that goes on when they put conferences together and they get speakers along and they seem to have them talking on similar themes. But sometimes I mean giving free reign is good, but sometimes it's unimpressive. And I'll tell you what I'd rather do and where I'd rather be. I'd rather be on the ship, with the truckers on the quayside, with those people unloading the ships and in the dockside, officers in a factory, on a production line, in a warehouse and talking to operatives, talking to people that work there and finding out their ideas. I think I'd learn far more and get much more value out of simply being in the warehouse on the line in the factory, and that's why I spend most of my time inside organizations talking to people who do the job.

Tony Hines: 15:26

I think this goes back to my early experiences and I might have told you before, but once upon a time I was an accountant and when I was an accountant I was working inside factories and I liked being in factories and I was also a consultant after that, traveling around to different organizations and finding out what was going on. And that was always my interest the investigation, finding a problem and finding the source of the problem Always important to me. And I never spoke really well. I did speak to colleagues who were also consultants or other people at the management level in the organisation, but guess what? I didn't often find the answers there. The answers were always found by talking to people who did the jobs and asking them what was going on, and you'd piece the information together and you'd realize that what they were actually telling you, even if they couldn't articulate it perfectly, was probably far more accurate than what some of the managers or some other consultants might be telling you. And why was that so? Well, it's simple, really because you're closer to the action. You're closer to what's going on when you talk to people who are working doing the job on the line, on the ship, in the trucks, and they know what's going on and you're lucky if they share it with you.

Tony Hines: 16:52

I thought of this just a couple of days ago when I was looking at well, I was clearing out a garage area and I found some old tin samples, because one of the jobs I did was I worked as a cost accountant inside a tin factory producing tins, and that was very interesting. We made tin cans and we made tubes and packaging material. It was an interesting company and for the sake of confidentiality, I won't say who it was, but there were some interesting things that I learned through my experiences in that organization and my favorite place was always on the production line. Every day I'd do what I had to do working out costs or putting together a set of financial accounts for the factory for a week, a month or a year, or I'd talk to auditors as they came in to audit things and I'd talk to management to give them the figures and the numbers.

Tony Hines: 17:52

But I always liked to go on walkabout, and so you'd quite often find me, not in the office but in the factory, and I'd walk through the factory talking to people in a friendly way and I'd just ask them what they were doing, what was going on, and not necessarily in a quizzy way so they weren't suspicious, it was just a chat and a talk, and I'd ask them what they were working on, what they were doing, and quite often those five-minute walks, 10-minute walks around the factory would actually give me mountains of information, mountains of data, qualitative data to support some of the numbers that I was working on back in my office, because sometimes I couldn't really understand, for example, why there was a variance on materials or why there was a variance in labour cost on a particular production. But very quickly, from talk and walk, I'd find out and suddenly my assumptions about what had happened were completely changed through those walkabouts on the factory floor. And that was a valuable lesson, because that taught me that you must always go to the source. So if you want to find out something, get closer to the source.

Tony Hines: 19:09

Stop by and listen to previous episodes of Chain Reaction. We've got over 300 episodes. We've got listeners in 95 countries, 1131 cities over 6 continents, and I think it's now over 11,000 listeners that we have. So come and join us then. Oh, and this week I did also learn that we are a top supply chain management podcast in Feedspot.

Tony Hines: 19:38

Well, that's it for today's episode. You can see that heuristics are interesting and useful, but you've got to be cautious. And you can also see experience is where the value is at, and if you try to understand something, go to the source. They know what's going on and they will quite often share that information with you so that you can make sense of the problem that you're interested in. So a couple of wisdoms in today's episode, I hope, and maybe you've learned something you didn't know before you began to listen to the episode, and hopefully you'll want to come back and listen again next time. So until then, I'm Tony Hines, I'm signing off, take care. See you in the podcast, in the chain reaction podcast, written, presented and produced by Tony Hines.