Supply chain horizontal complexity and the moderating impact of inventory turns: A study of the automotive component industry

Abstract

This study examines the impact that a focal firm's number of products it produces, number of suppliers it sources from, and number of customers is sells to has on firm financial performance (ROA and ROS). Additionally, we test the moderating impact of inventory turns on these relationships. Using archival data compiled from different databases, we use multivariate regression and moderation analysis to test our hypotheses in the context of the automotive component industry. We find that increased number of products has a positive direct effect on financial performance with diminishing returns. Additionally, increased inventory turns has a positive interaction with both increased number of products and increased number of suppliers. This suggests that firms can leverage the competency needed to achieve improved inventory turns to better manage the horizontal complexity inherent with a broader supply base and product line. This is the first paper to our knowledge that simultaneously studies upstream, downstream and internal sources of supply chain horizontal complexity within a single industry, thus providing a supply chain view of the topic. Our findings have important implications for practitioners grappling with the tradeoffs inherent in managing supply chain horizontal structural complexity.