Demand stimulation in finished-goods inventory management: Empirical evidence from General Motors dealerships

Automobile dealerships are key players in the automobile industry. Their inventory policies are crucial to automobile supply chain management, yet they are largely unexplored empirically. Using data from General Motors dealerships, this paper proposes two simultaneous equation modeling (SEM) systems to examine the interactive and simultaneous effects of sales demand, order quantity and inventory level in dealerships. Our empirical results indicate that high demand leads to high inventory levels (sales effect), while high inventory levels stimulate sales demand (demand stimulation effect) in a dynamic and uncertain environment. We also find that inventory cannot stimulate demand infinitely. This study is among the first empirical investigations to experiment with a SEM system applied to finished-goods inventory management in the automobile supply chain. Together, our methodology and results provide several avenues for developing finished-goods inventory policies in business management.