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

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Author Info

  • Gérard P. Cachon

    ()
    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

  • Marcelo Olivares

    ()
    (Columbia Business School, Columbia University, New York, New York 10027)

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    Abstract

    Automobile manufacturers in the U.S. supply chain exhibit significant differences in their days of supply of finished vehicles (average inventory divided by average daily sales rate). For example, from 1995 to 2004, Toyota consistently carried approximately 30 fewer days of supply than General Motors. This suggests that Toyota's well-documented advantage in manufacturing efficiency, product design, and upstream supply chain management extends to their finished-goods inventory in their downstream supply chain from their assembly plants to their dealerships. Our objective in this research is to measure for this industry the effect of several factors on inventory holdings. We find that two factors, the number of dealerships in a manufacturer's distribution network and a manufacturer's production flexibility, explain essentially all of the difference in finished-goods inventory between Toyota and three other manufacturers: Chrysler, Ford, and General Motors.

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    File URL: http://dx.doi.org/10.1287/mnsc.1090.1095
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 56 (2010)
    Issue (Month): 1 (January)
    Pages: 202-216

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    Handle: RePEc:inm:ormnsc:v:56:y:2010:i:1:p:202-216

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    Related research

    Keywords: empirical; supply chain management; distribution; product variety; inventory theory; manufacturing flexibility;

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    Cited by:
    1. Lucía Barcos & Alicia Barroso & Jordi Surroca & Josep A. Tribó, 2010. "Corporate social responsibility and inventory policy," Business Economics Working Papers id-10-03, Universidad Carlos III, Instituto sobre Desarrollo Empresarial "Carmen Vidal Ballester".
    2. 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.
    3. Nepal, Bimal & Murat, Alper & Babu Chinnam, Ratna, 2012. "The bullwhip effect in capacitated supply chains with consideration for product life-cycle aspects," International Journal of Production Economics, Elsevier, vol. 136(2), pages 318-331.

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