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The Myth of Decline: A New Perspective on the Supply Chain and Changing Inventory-Sales Ratios

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  • Adam Fein

Abstract

There is a widely held perception that improved supply chain practices and new technologies have led to declines in the inventory-sales ratio. Our empirical analyses of 87 inventory-sales ratios in 45 manufacturing, wholesale distribution, and retail trade industries casts doubt on assumptions of widespread declines in these ratios. We find that less than half of the ratios showed statistically significant declines during the 12 year period from January 1992 through December 2003. Information technology may indeed have improved inventory management, but this improvement is not reflected in inventory-sales ratio data for many U.S. industries. Our detailed case study of the pharmaceutical supply chain also offers additional insights by showing how relevant technological investments led to an extended period in which inventory-to-sales ratios increased.

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File URL: ftp://ftp2.census.gov/ces/wp/2004/CES-WP-04-18.pdf
File Function: Revised version, 2005
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Bibliographic Info

Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 04-18.

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Length: 43 pages
Date of creation: Oct 2004
Date of revision: Feb 2005
Handle: RePEc:cen:wpaper:04-18

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  1. Jonathan L. Willis, 2003. "Implications of structural changes in the U.S. economy for pricing behavior and inflation dynamics," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 5-27.
  2. James H. Stock & Mark W. Watson, 2003. "Has the Business Cycle Changed and Why?," NBER Chapters, in: NBER Macroeconomics Annual 2002, Volume 17, pages 159-230 National Bureau of Economic Research, Inc.
  3. Paul A. David, 2005. "Productivity growth prospects and the new economy in historical perspective," Economic History 0502005, EconWPA.
  4. Valerie A. Ramey & Daniel J. Vine, 2004. "Why Do Real and Nominal Inventory-Sales Ratios Have Different Trends," NBER Working Papers 10703, National Bureau of Economic Research, Inc.
  5. Margaret M. McConnell & Patricia C. Mosser & Gabriel Perez Quiros, 1999. "A decomposition of the increased stability of GDP growth," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 5(Aug).
  6. Jonathan McCarthy & Egon Zakrajsek, 1998. "Trade inventories," Staff Reports 53, Federal Reserve Bank of New York.
  7. JONATHAN McCARTHY & EGON ZAKRAJSEK, 2007. "Inventory Dynamics and Business Cycles: What Has Changed?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 591-613, 03.
  8. Adam J. Fein, 1998. "Understanding evolutionary processes in non-manufacturing industries: Empirical insights from the shakeout in pharmaceutical wholesaling," Journal of Evolutionary Economics, Springer, vol. 8(3), pages 231-270.
  9. Donald S. Allen, 1995. "Changes in inventory management and the business cycle," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 17-26.
  10. Ramey, Valerie A. & West, Kenneth D., 1999. "Inventories," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 13, pages 863-923 Elsevier.
  11. James A. Kahn & Margaret M. McConnell, 2002. "Has inventory volatility returned? A look at the current cycle," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 8(May).
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