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An Econometric Analysis of Inventory Turnover Performance in Retail Services

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Author Info

  • Vishal Gaur

    ()
    (Leonard N. Stern School of Business, New York University, 44 West 4th Street, New York, New York 10012)

  • Marshall L. Fisher

    ()
    (The Wharton School, University of Pennsylvania, Jon M. Huntsman Hall, 3730 Walnut Street, Philadelphia, Pennsylvania 19104-6366)

  • Ananth Raman

    ()
    (Harvard Business School, Morgan Hall, Soldiers Field, Boston, Massachusetts 02163)

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    Abstract

    Inventory turnover varies widely across retailers and over time. This variation undermines the usefulness of inventory turnover in performance analysis, benchmarking, and working capital management. We develop an empirical model using financial data for 311 publicly listed retail firms for the years 1987--2000 to investigate the correlation of inventory turnover with gross margin, capital intensity, and sales surprise (the ratio of actual sales to expected sales for the year). The model explains 66.7% of the within-firm variation and 97.2% of the total variation (across and within firms) in inventory turnover. It yields an alternative metric of inventory productivity, adjusted inventory turnover, which empirically adjusts inventory turnover for changes in gross margin, capital intensity, and sales surprise, and can be applied in performance analysis and managerial decision making. We also compute time trends in inventory turnover and adjusted inventory turnover, and find that both have declined in retailing during the 1987--2000 period.

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    File URL: http://dx.doi.org/10.1287/mnsc.1040.0298
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 51 (2005)
    Issue (Month): 2 (February)
    Pages: 181-194

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    Handle: RePEc:inm:ormnsc:v:51:y:2005:i:2:p:181-194

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    Related research

    Keywords: benchmarking; inventory turnover; retail operations; performance measures;

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    Cited by:
    1. Elsayed, Khaled & Wahba, Hayam, 2013. "Reinvestigating the relationship between ownership structure and inventory management: A corporate governanceperspective," International Journal of Production Economics, Elsevier, vol. 143(1), pages 207-218.
    2. Kolias, Georgios D. & Dimelis, Sophia P. & Filios, Vasilios P., 2011. "An empirical analysis of inventory turnover behaviour in Greek retail sector: 2000-2005," International Journal of Production Economics, Elsevier, vol. 133(1), pages 143-153, September.
    3. Bhatnagar, Amit & Syam, Siddhartha S., 2014. "Allocating a hybrid retailer's assortment across retail stores: Bricks-and-mortar vs online," Journal of Business Research, Elsevier, vol. 67(6), pages 1293-1302.
    4. de Vries, Jan, 2013. "The influence of power and interest on designing inventory management systems," International Journal of Production Economics, Elsevier, vol. 143(2), pages 233-241.
    5. Stößlein, Martin & Kanet, John Jack & Gorman, Mike & Minner, Stefan, 2014. "Time-phased safety stocks planning and its financial impacts: Empirical evidence based on European econometric data," International Journal of Production Economics, Elsevier, vol. 149(C), pages 47-55.
    6. van Zelst, Susan & van Donselaar, Karel & van Woensel, Tom & Broekmeulen, Rob & Fransoo, Jan, 2009. "Logistics drivers for shelf stacking in grocery retail stores: Potential for efficiency improvement," International Journal of Production Economics, Elsevier, vol. 121(2), pages 620-632, October.
    7. Lai, Richard, 2005. "The Geography of Retail Inventory," MPRA Paper 4755, University Library of Munich, Germany.
    8. Cannon, Alan R., 2008. "Inventory improvement and financial performance," International Journal of Production Economics, Elsevier, vol. 115(2), pages 581-593, October.
    9. Richard Kum-yew Lai, 2005. "Inventory and the Stock Market," Finance 0509006, EconWPA.
    10. Lai, Richard, 2006. "Inventory Signals," MPRA Paper 4753, University Library of Munich, Germany.
    11. Robb, David J. & Liu, Fei & Lai, Richard & Ren, Z. Justin, 2012. "Inventory in mainland China: Historical, industry, and geographic perspectives," International Journal of Production Economics, Elsevier, vol. 135(1), pages 440-450.
    12. Victor Manuel Bennett & Lamar Pierce & Jason A. Snyder & Michael W. Toffel, 2012. "Competition and Illicit Quality," Harvard Business School Working Papers 12-071, Harvard Business School, revised May 2012.
    13. Alvi, Mohsin, 2012. "The impact of packet size on inventory turnover of fmcg products in Pakistan [wholesaler & retailer perspective]," MPRA Paper 39065, University Library of Munich, Germany.
    14. Obermaier, Robert, 2012. "German inventory to sales ratios 1971–2005—An empirical analysis of business practice," International Journal of Production Economics, Elsevier, vol. 135(2), pages 964-976.
    15. Barcos, Lucía & Barroso, Alicia & Surroca, Jordi & Tribó, Josep A., 2013. "Corporate social responsibility and inventory policy," International Journal of Production Economics, Elsevier, vol. 143(2), pages 580-588.

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