Inventory Holdings Research Articles

Labour flexibility: Impact of functional and localised strategies on team-based product manufacturing

The purpose of this paper is to explore the relationship between labour flexibility and effective team working, which are two of the most sought after properties in today's dynamic and competitive manufacturing environment. This is due in no small part to the growth of modern manufacturing principles and philosophies such as just-in-time, lean manufacturing, total quality management, world class manufacturing and flexible manufacturing systems. These systems strongly advocate the need for both teamwork and flexibility. The central platform for realising these philosophies is the popular and well-known manufacturing process, cellular manufacturing. In this paper, an empirical study is undertaken to explore the impact of two labour flexibility strategies (functional and intra-cell flexibility) on the effectiveness of team working within cellular manufacturing environment. The study found that functional flexibility had an overall stronger, significant effect on team processes (communication, conflict resolution, problem solving, goals and performance, tasks and planning) than did intra-cell flexibility. The study also found that functional flexibility improved team outputs in areas such as customer delivery, inventory holdings and quality.

Commentaires sur le traitement des inventaires dans le modèle CANDIDE

The CANDIDE model referring to the traditional stock adjustment model to specify its inventory investment equations, the comment stresses the difficulty of that kind of model to explain and predict correctly the behaviour of inventory holdings. After pointing out the incredible loan adjustment lags usually associated with the stock adjustment model, and also obtained with CANDIDE, the comment draws the attention on the annual data basis of CANDIDE and the fact that the behaviour of inventory holdings is most likely to be better observed with monthly data. Some references to alternative models of inventory holdings and to the temporal decision problem are also given.

An Analysis of the Inventory Holding Components of the Bid-Ask Spread

We examine the performance of three spread decomposition models which provide estimates of the inventory holding component of the bid-ask spread: the Stoll (1989), Huang and Stoll (1997), and Bollen, Smith, and Whaley (2004) models. As a benchmark for the analysis, we use the order imbalance metrics of Bessembinder’s (2002) and Chordia and Subrahmanyam’s (2002) as well as the percentage spread. We find that the Bollen, Smith, and Whaley (2004) model has the largest number of predicted relations (although the Stoll, 1989 model also performs well) with proxies for inventory holding costs. We recommend that researchers needing to use the inventory holding component of the spread use either the Bollen, Smith, and Whaley (2004) or Stoll (1989) model.

Approximation Algorithms for the Supplier's Supply Chain Scheduling Problem to Minimize Delivery and Inventory Holding Costs

We study the upstream supplier's batch scheduling problem in a supply chain, which was defined by Hall and Potts [Hall, N. G., C. N. Potts. 2003. Supply chain scheduling: Batching and delivery. Oper. Res. 51(4) 566–584]. The supplier has to manufacture multiple products and deliver them to customers in batches. There is an associated delivery cost with each batch. The objective of the supplier is to minimize the total inventory holding and delivery costs. We present simple approximation algorithms for this strongly NP-hard problem, which find a solution that is guaranteed to have a cost at most 3/2 times the minimum. We also prove that the approximation algorithms have worst-case bounds that vary parametrically with the data and that for realistic parameter values are much better than 3/2. The theoretical results are also supported by the findings of a computational study.

Supply Chain Coordination by Contracts with Inventory Holding Cost Share

In this document it is analyzed the importance of contracts for coordination between two companies in a supply chain. In the studied situation, one company, or supplier, supplies one product to the other company, who is a retailer. The companies are going to coordinate by two types of decisions: economic (concerning prices fixed on a contract), and physical exchange (concerning the inventory to be held). Two types of contracts will be presented: one contract with a simple pricing scheme and two contracts with inventory holding cost shared among the companies of the supply chain. The objective is to show that contracts with inventory holding cost share allow the two companies to efficiently coordinate the chain they form.

On the employment effects of productivity shocks: The role of inventories, demand elasticity, and sticky prices

Whether technological progress raises or lowers employment in the short run has been the subject of much debate in the recent years. We show that cross-industry differences in inventory holding costs, demand elasticities, and price rigidities potentially all affect employment decisions in the face of productivity shocks. In particular, the employment response to a permanent productivity shock is more likely to be positive the less costly it is to hold inventories, the more elastic industry demand is, and the more flexible prices are. Using data on 458 4-digit U.S. manufacturing industries over the period 1958–1996, we find statistically significant effects of variations in inventory holdings and demand elasticities on short-run employment responses, but less conclusive evidence pertaining to the effects of measured price stickiness.

Distribution contracts to support optimal inventory holdings under demand uncertainty

When suppliers produce products for which demand is uncertain, they face a problem of inducing downstream distributors to stock inventory levels that the suppliers prefer. This paper considers a wide array of alternative supply contracts, each of which consists of a mixture of constant per-unit wholesale prices, buy-back arrangements, and post sale payments contingent on sales made, such as revenue sharing or buybacks. We show that linear supply contracts specifying any combination of two of these three instruments can implement the vertical integrated outcome for a monopoly, thereby generating the supplier's preferred inventory configuration and price distribution. We extend our results to differentiated product oligopoly, demonstrating that each supplier obtains its preferred inventory configuration and price distribution, given the choices of its rival. Distributors choose optimal inventories from the suppliers' standpoint, even if suppliers do not know the distribution of demand uncertainty, and, given the perfect competition among distributors, all profits in the supply chain are captured by suppliers. Thus, suppliers are able to deal with demand uncertainty with remarkably little information about demand, and without the need to control dealer actions in detail. In particular, suppliers need not specify either dealer inventories or resale prices, but instead encourage distributors to order based on information in their possession and to set prices that generate desirable resale price dispersion.

Adjustment Costs, Inventories and Output

AbstractThis paper analyzes the optimal adjustment strategy of an inventory‐holding firm facing price‐ and quantity‐adjustment costs in an inflationary environment. The model nests both the original menu‐cost model that allows production to be costlessly adjusted, and the later model that includes price‐ and quantity‐adjustment costs, but rules out inventory holdings. It is shown that the firm's optimal adjustment strategy may involve stockouts. At low inflation rates, output is inversely related to the inflation rate, and the length of time demand is satisfied increases with the demand elasticity but decreases with the storage cost and the real interest rate.

Convenience Yields Modeling as Call Options: Indian Wheat Market

This article examines empirically the behavior and determinants of convenience yield over time for wheat. Contrary to previous approaches, convenience yields are treated as call options with identifiable exercise price, time to maturity and underlying asset. The empirical results derived from the analysis of Indian wheat price and stock data covering the period 2004-2006, are in line with previous evidence that convenience yields are negatively related to inventory levels. This article tries to replicate the work of Milonas-Thomadakis (1997) in context of Indian wheat market. The concept of convenience yield is quite old, however different interpretation have evolved over the period. Early authors [Kaldor (1939); Working (1948, 1949)] have defined it as a negative component of carrying charges in an effort to explain the often observed phenomenon of spot prices being higher than futures prices. This definition presents convenience yield as a benefit which accrues to inventory holders from the increased utility associated with availability at periods of scarce supplies.

Limits to Arbitrage and Hedging: Evidence from Commodity Markets

We build an equilibrium model with commodity producers who are averse to future cash flow variability, and hedge using futures. Their hedging demand is met by risk-constrained speculators. Increases in producers' hedging demand (speculators' risk- capacity) increase hedging costs via price-pressure on futures, reducing producers' inventory holdings, and thus spot prices. Consistent with our model, in oil and gas data from 1980-2006 producers' default risk forecasts hedging demand, futures risk-premia and spot prices; more so when speculative activity is lower. We conclude that limits to financial arbitrage can generate limits to hedging by firms, affecting prices in both asset and goods markets.

AN INVESTIGATION INTO THE EFFECT OF FULL‐SCALE SUPPLY CHAIN MANAGEMENT SOFTWARE ADOPTIONS ON INVENTORY BALANCES AND TURNS

Supply chain management (SCM) software vendors, analysts, and others claim that firms implementing SCM software stand to benefit by being able to reduce inventory holdings and increase inventory turns. We theorize that full‐scale implementations lead to system‐wide inventory optimization, which in turn leads to cost improvement associated with inventory balances and turns. To examine the question, we develop an analytical model of inventory optimization, then analyze the effects of the model with a numerical experiment, and finally confirm the results with an empirical examination.We find that firm‐wide implementation is significant in explaining improvement in inventory metrics, relative to pre‐implementation metrics for our sample. Our empirical tests indicate that implementing SCM software across only a portion of the firm does not impact inventory metrics, but that the scale of implementation does. More precisely, we find that firms implementing SCM software across the entire company significantly improve both inventory turns and inventory as a percent of revenue relative to partially‐implementing firms and non‐implementers.

Exploring the Bullwhip Effect by Means of Spreadsheet Simulation

One of the main supply chain deficiencies is the bullwhip effect: Demand fluctuations increase as one moves up the supply chain from retailer to manufacturer. The beer distribution game is widely known for illustrating these supply chain dynamics in class. In this paper we present a spreadsheet exploring the two key causes of the bullwhip effect: demand forecasting and the type of ordering policy. We restrict our attention to a single product two-echelon system and illustrate how tuning the parameters of the replenishment policy induces or reduces the bullwhip effect. We also demonstrate how bullwhip reduction (dampening the order variability) may have an adverse impact on inventory holdings or customer service. The spreadsheet can be used to help students gain insight into how inventory control policies and forecasting influence the magnitude of the bullwhip effect and the quality of customer service.

Exploring the Bullwhip Effect by Means of Spreadsheet Simulation

An important supply chain research problem is the bullwhip effect: demand fluctuations increase as one moves up the supply chain from retailer to manufacturer. It has been recognized that demand forecasting and ordering policies are two of the key causes of the bullwhip effect. In this paper we present a spreadsheet application, which explores a series of replenishment policies and forecasting techniques under different demand patterns. It illustrates how tuning the parameters of the replenishment policy induces or reduces the bullwhip effect. Moreover, we demonstrate how bullwhip reduction (order variability dampening) may have an adverse impact on inventory holdings. Indeed, order smoothing may increase inventory fluctuations resulting in poorer customer service. As such, the spreadsheets can be used as an educational tool to gain a clear insight into the use or abuse of inventory control policies and improper forecasting in relation to the bullwhip effect and customer service.

Safety procedures of coagulation factors

Two main types of safety procedures must be applied to biological products, including plasma derivatives: (i) preventive procedures and (ii) elimination procedures.Prevention includes epidemiological control of donor populations; checks on each donor’s health condition; analysis of each donation for the main pathogens using serological methods; additional analysis of all plasma for human immunodeficiency virus (HIV), hepatitis B virus (HBV), hepatitis C virus (HCV), hepatitis A virus (HAV) and the B19 virus, using nucleic acid amplification techniques (NAT). A 60 days or longer inventory hold of all plasma donations is applied, to allow additional time to discard previous donations from potential seroconverting or otherwise rejectable donors.Elimination procedures minimize the low residual risk of transmitting pathogens, including unknown or previously undetected ones. Since the introduction 20 years ago of solvent‐detergent treatment, very effective against enveloped viruses (HIV, HBV, HCV, West Nile virus, SARS, avian influenza virus etc), there have been no known cases of transmission of this type of pathogens by products manufactured according to this procedure. Other inactivation procedures such as pasteurization, dry‐heat or nanofiltration may prove equally effective. In addition, dry‐heat treatment and nanofiltration are capable of effectively eliminating non‐enveloped viruses (HAV, B19 virus). Recent studies show that the B19 virus is much more sensitive to heat (in lyophilized state or by pasteurization) and acid pH than previously thought.Although there is no evidence for the transmission of classic transmissible spongiform encephalopathies (TSEs) through blood or blood‐products transfusion, four possible cases have been reported in the United Kingdom involving transmission by non‐leukoreduced blood components of the agent that causes variant Creutzfeldt‐Jakob Disease (vCJD), a disease linked to the outbreak of bovine spongiform encephalopathy (BSE) which took place in that country. However, there are no cases of human TSE (classic or variant) transmission by plasma‐derived products. Analytical methods capable of detecting the vCJD agent in patients’ brains (where high titres are found) and other tissues (such as the spleen, appendix and lymph nodes, where much lower concentrations are found) are unable to detect the agent in blood or plasma from patients with vCJD, even in the clinical phase of the disease. Experiments by Grifols and other groups show that the capacity of the production processes to eliminate vCJD agent models is many orders of magnitude greater than the maximum expected load of the agent. In this regard, the efficacy of precipitation, affinity chromatography, depth filtration and nanofiltration are particularly notable.

Inventories, Manufacturer Returns Policies, and Equilibrium Price Dispersion under Demand Uncertainty

Returns policies can prevent a manufacturer's product from being discounted. Such discounting discourages inventory holdings, and can deny adequate retail representation to products with uncertain demand. We demonstrate that returns are not simply a substitute for resale price maintenance, but can instead be employed to support a desirable degree of price dispersion at retail. Surprisingly, optimal return policies depend only on market demand functions and marginal production costs. The manufacturer need not know the distribution of demand uncertainty for its product, but can instead rely on retailers to order appropriately. Our results generalize to oligopoly settings.

U.S. Retail and Wholesale Inventory Performance from 1981 to 2004

This paper examines the inventories of publicly traded U.S. retail and wholesale companies between 1981 and 2004. First, we document that inventory holdings have been reduced. The median of wholesale inventory holding periods was reduced from 73 days to 49 days. Retail inventory did not start to decline until about 1995. Second, we document that firms with abnormally high inventories have abnormally poor long-term stock returns. Third, we illustrate these effects for the cases of Wal-Mart, 7-Eleven (Japan), and some related firms.

Is Inventory's Fiscal Year End Effect Caused by Sales Timing? A Test Using a Natural Experiment from Germany

One explanation for firms’ inventory cycles is that they are tied to the calendar year, reflecting fundamental demand seasonality. But we find that these cycles are also tied to the fiscal year, an accounting artifact constructed by firms themselves. Specifically, inventory is lower at fiscal year end (FYE), a phenomenon we call inventory’s FYE effect. Among U.S. manufacturers, wholesalers, and retailers, we find inventory is 10% lower at FYE than at other times of the fiscal year, controlling for calendar time. In aggregate, this 10% is $47 billion, valued at cost of goods. One possible explanation for the FYE effect is sales timing, in which executives’ private benefits lead them to pull some post‐FYE sales into the FYE. But the literature suggests three alternative hypotheses that can also explain the FYE effect. To test for sales timing, we employ a novel natural experiment based on Germany’s tax code change in 2000, when some firms change their FYEs in a way that is plausibly exogenous to inventory patterns. We find that these German firms also have lower inventory at FYE. This result is robust to corrections for possible treatment selection using the Heckit procedure and propensity scoring. We also examine mediator and moderator effects. For example, the link from FYE to lower inventory is mediated by lower margins and higher sales. Firms whose executive compensations have a higher bonus component have a stronger FYE effect. Taken together, the evidence is consistent with sales timing, but is not explained by the alternative hypotheses. Finally, we estimate that 1 percentage point lower inventory at FYE is associated with an economically significant 1.7% lower Tobin’s q, which is due to lower gross profits and higher costs like inventory holdings expenses and capacity investments. We conclude with a discussion of limitations, next steps, and some intriguing implications for research and practice.

A probabilistic model for analyzing viral risks of plasma‐derived medicinal products

The prevention of transmission of viral infections by plasma-derived medicinal products is of concern to manufacturers, legislators, and patient representative groups. Recent European legislation requires a viral risk assessment for all new marketing applications of such products. A discrete event Monte Carlo model was developed to determine the viral transmission risks of the plasma-derived medicinal products. The model incorporates donor epidemiology, donation intervals, efficiency of screening tests for viral markers, inventory hold period, size and composition of the manufacturing pool, production time, process virus reduction capacity, and product yield. With the model, the human immunodeficiency virus (HIV) and hepatitis C virus (HCV) contamination risks of a typical hypothetical plasma product were calculated, and the sensitivity of the risk to various model variables was analyzed. The residual HIV and HCV risks of the finished products are linear in change with viral incidence rate and inversely linear with product yield and process virus reduction capacity. For the product analyzed in this article, the residual risk is less sensitive to changes in screening test pool size, donation frequency, and inventory hold period. There is only a limited dependency on the donation type (apheresis or whole-blood donations) and a negligible dependency on the manufacturing pool size. The use of probabilistic model simulation techniques is indispensable when estimating realistic residual viral risks of plasma-derived medicinal products. In contrast to conventional deterministic residual risk estimations, the probabilistic approach allows incorporation of specific manufacturing decisions and therefore provides the only feasible alternative for a correct assessment of residual risks.

Are Inventories a Buffer Against Weak Legal Systems?

SUMMARYWeak legal enforcement of contracts leads to inefficient breach and an overall increase in breaches for firms and individuals. We suggest that firms use inventory holdings as a means to counteract weak contract enforcement. We test the hypothesis that firms operating in weak legal environments have a higher ratio of inventories to net sales than firms operating in strong legal environments. Empirical evidence in support of the hypothesis using data from over three hundred comparable firms from fourteen product groups across thirty‐nine countries is presented.

Drivers of Finished Goods Inventory Performance in the U.S. Automobile Industry

Automobile manufacturers in the U.S. supply chain exhibit signi…cant dierences in their days-of-supply of …nished vehicles (average inventory divided by average daily sales rate). For example, from 1995 to 2005, Toy- ota consistently carried approximately 30 fewer days-of-supply than General Motors. This suggests that Toyota's well documented advantage in manu- facturing e¢ ciency and upstream supply chain management extends to their control of the …nished goods supply chain downstream from their assembly plants. Our objective in this research is to measure for this industry the eect of several factors on inventory holdings, including product variety, demand variability, product sustitutability and production ‡exibility. Four of the factors we study explain aproximately half of the dierence between Toyota and GM. We also make methodological contributions to the econo- metric analysis of inventory performance. In particular, we use panel data to control for endogenous decisions related to product variety and, in contrast to previous empirical studies, …nd that increasing variety has a negative impact on inventory performance.