Interaction of capacity utilization and inventory efficiency: the moderating role of information sharing

This paper is aimed at verifying the existence of the systematic contradictions between inventory efficiency (IE) and capacity utilization (CU), two critical indicators of firm performance, in the manufacturing industry and the role of information sharing with supply chain partners in weakening the contradictions through empirical analysis. Raw material and finished goods inventory are studied respectively, and the underlying mechanism is established for each. With a cross-sectional dataset, we estimate systems of simultaneous equations with the three-stage least square (3SLS) method to investigate the interacting effects and further conduct the estimation on subsamples grouped by the moderator to study the moderating effects. The study confirms a significant two-way negative relationship between IE and CU and documents a significant negative moderating effect of sharing demand forecast with raw material suppliers on the interaction between raw material inventory efficiency (RMIE) and CU. The findings suggest managers keep in mind that the two operational objectives cannot be achieved at the same time dealing with supply chain uncertainty and take into account the costs and benefits of capacity and inventory when choosing strategies. They can also improve this situation by cooperating with supply chain partners to share information like demand forecast with them.