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Monitoring, Operational Manager Efforts and Inventory Policy

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  • José Antonio Alfaro

    ()
    (School of Economics and Business Administration, University of Navarra)

  • Josep Tribó

    ()
    (Universidad Carlos III de Madrid)

Abstract

Operations managers are becoming more important in modern corporations. They do not only care on firms’ inventory management but also they are involved in firms’ strategic decisions. Within this setting we ask about the consequences in the inventory policy of this new role undertaken by these managers. To do so, we develop a model where a firm’s Operations Manager can devote some efforts to develop non-inventory related activities. These efforts, although non-verifiable, may be known with a certain probability if the owner monitors them. Interestingly, by monitoring these efforts, a firm’s owner may end up stimulating Operations Manager to achieve steep inventory cost reductions in the short-term. Basic idea is that Operations Manager, in general, avoids reducing inventory costs significantly in one period because this makes additional cost cuts difficult which, in turn, reduce expected future inventory-related retribution. However, by compensating those non-inventory-related efforts may offset these losses. Thus, although Operations Managers in modern corporations carry out non-inventory related responsibilities, this may bring about some benefits on inventory costs reduction.

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Bibliographic Info

Paper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number 11/03.

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Length: 23 pages pages
Date of creation: Jul 2003
Date of revision:
Handle: RePEc:una:unccee:wp1103

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Web page: http://www.unav.es/facultad/econom

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  1. Alfaro, Jose A. & Tribo, Josep A., 2003. "Operations manager turnover and inventory fluctuations," International Journal of Production Economics, Elsevier, vol. 81(1), pages 51-58, January.
  2. Main, Brian G M & O'Reilly, Charles A, III & Wade, James, 1993. "Top Executive Pay: Tournament or Teamwork?," Journal of Labor Economics, University of Chicago Press, vol. 11(4), pages 606-28, October.
  3. Alan S. Blinder & Louis J. Maccini, 1991. "Taking Stock: A Critical Assessment of Recent Research on Inventories," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 73-96, Winter.
  4. Chang, Juin-jen & Lai, Ching-chong, 1999. "Carrots or sticks? A social custom viewpoint on worker effort," European Journal of Political Economy, Elsevier, vol. 15(2), pages 297-310, June.
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