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

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  • Gérard P. Cachon

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

  • Marcelo Olivares

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

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.

Suggested Citation

  • Gérard P. Cachon & Marcelo Olivares, 2010. "Drivers of Finished-Goods Inventory in the U.S. Automobile Industry," Management Science, INFORMS, vol. 56(1), pages 202-216, January.
  • Handle: RePEc:inm:ormnsc:v:56:y:2010:i:1:p:202-216
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    File URL: http://dx.doi.org/10.1287/mnsc.1090.1095
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. 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.
    2. Chuang, Chia-Hung & Chiang, Chung-Yean, 2016. "Dynamic and stochastic behavior of coefficient of demand uncertainty incorporated with EOQ variables: An application in finished-goods inventory from General Motors׳ dealerships," International Journal of Production Economics, Elsevier, vol. 172(C), pages 95-109.
    3. Jose A. Guajardo & Morris A. Cohen & Serguei Netessine, 2016. "Service Competition and Product Quality in the U.S. Automobile Industry," Management Science, INFORMS, vol. 62(7), pages 1860-1877, July.
    4. 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.
    5. Staeblein, Thomas & Aoki, Katsuki, 2015. "Planning and scheduling in the automotive industry: A comparison of industrial practice at German and Japanese makers," International Journal of Production Economics, Elsevier, vol. 162(C), pages 258-272.
    6. Chiang, Chung-Yean & Lin, Winston T. & Suresh, Nallan C., 2016. "An empirically-simulated investigation of the impact of demand forecasting on the bullwhip effect: Evidence from U.S. auto industry," International Journal of Production Economics, Elsevier, vol. 177(C), pages 53-65.
    7. Demeter, Krisztina & Golini, Ruggero, 2014. "Inventory configurations and drivers: An international study of assembling industries," International Journal of Production Economics, Elsevier, vol. 157(C), pages 62-73.
    8. 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.
    9. repec:eee:proeco:v:193:y:2017:i:c:p:148-159 is not listed on IDEAS

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