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Inventory Types and Firm Performance:

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Inventory Types and Firm Performance:

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  • October 17, 2014
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  • Course: procurement
  • Professor: Mr. kibirige
  • School: SBA
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Inventory Types and Firm Performance:
Abstract
The effects of inventory management on firm performance have been well documented. Most previous research, however, has focused on the performance effects of total inventories and has ignored the potentially differential performance effects of raw materials, work-in-process, and finished goods inventories. This research investigates the effects of various inventory types on firm performance. The empirical analyses of data from U.S. manufacturing industries reveal that the magnitude of the inventory–performance relationship varies by type of inventory and across industries. Specifically, raw materials inventories have a greater impact on firm performance than work-in-process and finished goods inventories. As a possible explanation, intertemporal interactions among these inventory types are explored using vector autoregressive and vector error correction models. The results suggest that raw materials and finished goods inventories asymmetrically affect each other over time. Implications for research and practice as well as future research opportunities are discussed. Close the feedbackYou are previewing our new enhanced HTML article. If you can't find a tool you're looking for, please click the link at the top of the page to go "Back to old version". We'll be adding more features regularly and your feedback is important to us, so please let us know if you have comments or ideas for improvement. Introduction

Inventory management is an important part of logistics, given its significant impact on firm and supply chain performance (Shapiro and Wagner 2009). Firms recognize inventory management as an important driver of firm performance and undertake initiatives to improve inventory management efficiency and effectiveness. To this end, they invest in supply chain software (Blankley et al. 2008), implement supply chain collaboration initiatives such as vendor-managed inventory and quick response (Waller et al. 1999),...
Inventory Types and Firm Performance:
Abstract
The effects of inventory management on firm performance have been well documented. Most
previous research, however, has focused on the performance effects of total inventories and has
ignored the potentially differential performance effects of raw materials, work-in-process, and
finished goods inventories. This research investigates the effects of various inventory types on
firm performance. The empirical analyses of data from U.S. manufacturing industries reveal that
the magnitude of the inventory–performance relationship varies by type of inventory and across
industries. Specifically, raw materials inventories have a greater impact on firm performance
than work-in-process and finished goods inventories. As a possible explanation, intertemporal
interactions among these inventory types are explored using vector autoregressive and vector
error correction models. The results suggest that raw materials and finished goods inventories
asymmetrically affect each other over time. Implications for research and practice as well as
future research opportunities are discussed.
Close the feedbackYou are previewing our new enhanced HTML article.
If you can't find a tool you're looking for, please click the link at the top of the page to go "Back
to old version". We'll be adding more features regularly and your feedback is important to us, so
please let us know if you have comments or ideas for improvement.
Introduction
Inventory management is an important part of logistics, given its significant impact on firm and
supply chain performance (Shapiro and Wagner 2009). Firms recognize inventory management
as an important driver of firm performance and undertake initiatives to improve inventory
management efficiency and effectiveness. To this end, they invest in supply chain software
(Blankley et al. 2008 ), implement supply chain collaboration initiatives such as vendor-managed
inventory and quick response (Waller et al. 1999 ), employ postponement strategies
(Garcia-Dastugue and Lambert 2007), and adopt just-in-time inventory management practices
(Schwarz and Weng 2000), among others.
Much has been written about inventory management in the academic literature as well. Empirical
studies have documented the positive impact of good inventory management on firm
performance (e.g., Capkun et al. 2009 ; Eroglu and Hofer, 2011). However, most previous
research has focused on total inventories and ignored the potentially differential effects of raw
material inventories (RMI), work-in-process inventories (WIPI), and finished goods inventories
(FGI) on firm performance measures. Yet, there are significant differences among RMI, WIPI,
and FGI. First, RMI are lower in unit value as compared with FGI. Moreover, demand for FGI is
more uncertain than that for RMI (Stock and Lambert 2001). It is conceivable that such
differences among inventory types may lead to differential effects on firm performance. The
purpose of this research, therefore, is to theoretically and empirically investigate the effects of
RMI, WIPI, and FGI on firm performance.
This research contributes to the existing literature in three distinct ways. First, the performance
effects of total inventories as well as the individual performance effects of RMI, WIPI, and FGI
are estimated using a large data set of U.S. manufacturing firms. The estimation results indicate
that different types of inventories differentially impact financial performance. Second, the effect
of total inventories on firm performance is decomposed into performance effects of individual
inventory types. This analysis suggests that performance effects of RMI, WIPI, and FGI are not