Interdependence Among Inventory Types and Firm Performance

Abstract

Extant research on lean manufacturing has focused on the relationship between systemic inventory and performance. However, limited research, if any, has focused on dynamics between three main types of inventory -raw material, workin-process, and finished goods -and firm performance. Drawing on the interdependence framework and a sample of 1,286 firms representing 41,067 firm-quarter observations from 2000 to 2013, when considering two types of inventory efficiencies jointly, higher efficiency in the subsequent inventory type must be accompanied by lower efficiency in the previous inventory type. In other words, lower raw material inventory efficiency and higher work-in-process inventory efficiency, or lower work-in-process inventory efficiency and higher finished goods inventory efficiency are associated with higher performance. High performance is also realized only when inventory efficiency is increasing across all three inventory types. The findings show that pursuing efficiency in one type of inventory requires lower efficiency in the previous inventory stage, and benefits of lean manufacturing could only be realized when all three inventory efficiencies are simultaneously high.

The relationship between inventory leanness and product innovation with the contingent role of market concentration

“…The lean inventory management philosophy aims to eliminate unnecessary inventories and design a low-cost and efficient inventory workflow (Mahajan et al, 2023). Nevertheless, product innovation is centered on diversified and flexible work environments and new tools and materials, leading to more inventories (Manikas, 2017;Gonz alez-Ramos et al, 2023). However, at an operational level, while lean inventory management has strict regulations for operations, it also enhances responsiveness and work efficiency, an essential premise for the success of new products.…”

“…More specifically, adopting lean inventory management in firms may lead to an inventory decrease in raw material and work-inprocess but no change in finished goods (Chen et al, 2005). Such differences among inventory types affect financial performance differently (Eroglu and Hofer, 2011a, b;Manikas, 2017). Since firm performance has been the most critical factor in testing if an enterprise can promote innovation, a crucial part of implementing product innovation in a firm is to make sure that the organization allows enough diversity and freedom to promote creativity among all types of individuals (Wan et al, 2020).…”

“…Raw material inventory, referring to coordinating with its supplier and managing raw materials, copes with uncertainty associated with supply (Kim and Kim, 2016). The inventory leanness of raw material focuses on managing safety stocks, leading time, improving relationships with suppliers, and developing systems to optimize the storage and distribution of raw materials into production (Manikas, 2017). The more inventory leanness of raw material, the less variability of raw materials, and more tend to be zero-raw materials.…”

Does Inventory Management Improve Profitability? Empirical Evidence from Polish Manufacturing Industries

“…However, when analyzing the relationship between stocks' productivity and financial performance, the researchers usually took aggregated inventories into account while failing to address their components (mix). Generally, there is a dearth of studies that take discrete inventory types into account in the literature (e.g., Capkun et al, 2009;Ganas and Hyz 2015;Balakrishnan et al, 1996;Boute et al, 2007;Eroglu and Hofer, 2011;Isaksson and Seifert, 2014;Lieberman et al, 1999, Gaur andBhattacharya, 2011;Manikas, 2017;Bendig, 2018;Shin et al, 2016). Hence, there is only a little knowledge of the impacts of discrete inventory types on corporate financial performance.…”

Inventory Model Design by Implementing New Parameters into the Deterministic Model Objective Function to Streamline Effectiveness Indicators of the Inventory Management

“…The aim of this article is to modify the objective function of the deterministic model of inventory theory and to make specific calculations for individual parameters in such a way that inventories supplier's inventory on supply chain performance, research study [31] investigates the effect of control system structure and the performance of an inventory goods flow system with long-variable delay. The interdependence among inventory types and firm performance is elaborated in publication [32]. The authors of literature reference [33] discuss financial performance assessment in terms of inventory management practices, and study [34] is aimed at performance assessment in homogeneous/heterogeneous collaborative enterprise networks with inventory adjustment.…”