Inventory component volatility and its relation to returns

Bendig, David; Brettel, Malte; Downar, Benedikt

doi:10.1016/j.ijpe.2018.03.012

Cited by 23 publications

(28 citation statements)

References 67 publications

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“…The latter point is particularly interesting because it suggests that market perfomance is driven by a fundamentally different set of principles. This finding complements recent work (Steinker and Hoberg, 2013; Bendig et al, 2018) showing a positive association between inventory volatility and stock returns. From the lens of the newsvendor model, our results imply that not only are costs of overage and underage not symmetric, but that these costs vary along different financial dimensions.…”

Section: Resultssupporting

confidence: 90%

“…Examples of such relationships include production flexibility and the number of dealerships in the case of the automotive industry (Cachon and Olivares, 2010); the time relative to the fiscal year end in publicly traded firms (Lai, 2008; Hoberg et al, 2017); and sales characteristics, gross margins, and capital intensity in the retail industry (Gaur et al, 2005). We refer the reader to Eroglu and Hofer (2011), Steinker et al (2016), and Bendig et al (2018) for recent reviews of different aspects of the empirical inventory literature and focus on the studies that are most immediately relevant to our topic.…”

Section: Literature Reviewmentioning

confidence: 99%

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Inventory agility upon demand shocks: Empirical evidence from the financial crisis

Udenio

Hoberg

Fransoo

2018

J of Ops Management

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The objective of this paper is to identify antecedents of inventory agility (i.e., the capability to quickly adapt inventories to changes in demand) upon demand shocks based on the awareness‐motivation‐capability (AMC) framework and to explore the link between inventory agility and financial performance. We introduce an empirical measure of inventory agility based on the deviation of relative inventories (i.e., inventory days) from their forecasted values. We hypothesize that firms with higher awareness, motivation, and capabilities are associated with higher inventory agility in the presence of demand shocks. We define two empirical measures for each of the three dimensions of the AMC framework in the context of inventory agility: awareness (i.e., market orientation and technology orientation), motivation (i.e., gross margin and liquidity), and capabilities (i.e., inventory management capability and resource availability). In addition, we incorporate the constraining factor model (CFM) into the AMC framework, thus allowing for complementarity among the different measures. In this view, the influence of each of the measures on inventory agility varies according to which of the measures is the constraining factor for a given firm. The 2008 financial crisis may have tested firms' inventory agility more than any other crisis since the Great Depression, as an unprecedented collapse of demand coincided with a reduction in credit availability. Therefore, for our analysis, we use firm‐level empirical data from 1263 public U.S. manufacturing firms for the 2005–2011 period. We find that firms' motivation and capabilities are key factors associated with inventory agility. Through the CFM, we show that identifying the constraining factors leads to a more refined understanding of the moderating effects of the antecedents of inventory agility. In a separate analysis, we find that inventory agility is positively associated with a number of financial performance metrics during crisis periods. We distinguish between inventory underages and overages and find that, during the crisis, they are both associated with lower financial performance. Furthermore, we find evidence that higher underages (overages) magnify the effect of overages (underages). Among other managerial insights, our findings suggest that the use of inventory reductions as a quick way to increase liquidity must be gauged against their potential impact on other aspects of financial performance.

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Section: Resultssupporting

confidence: 90%

Section: Literature Reviewmentioning

confidence: 99%

Inventory agility upon demand shocks: Empirical evidence from the financial crisis

Udenio

Hoberg

Fransoo

2018

J of Ops Management

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“…However, when analyzing the relationship between stocks' productivity and financial performance, the researchers usually took aggregated inventories into account while failing to address their components (mix). Generally, there is a dearth of studies that take discrete inventory types into account in the literature (e.g., Capkun et al, 2009;Ganas and Hyz 2015;Balakrishnan et al, 1996;Boute et al, 2007;Eroglu and Hofer, 2011;Isaksson and Seifert, 2014;Lieberman et al, 1999, Gaur andBhattacharya, 2011;Manikas, 2017;Bendig, 2018;Shin et al, 2016). Hence, there is only a little knowledge of the impacts of discrete inventory types on corporate financial performance.…”

Section: Literature Reviewmentioning

confidence: 99%

Does Inventory Management Improve Profitability? Empirical Evidence from Polish Manufacturing Industries

Gołaś¹

2020

ERSJ

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Purpose: The main purpose of this article is to investigate the relationship between inventory management and industrial processing companies' financial performance. In analyzing these relationships, the study took account of total inventories (INV) and their components, i.e., materials and raw materials (RMI), intermediates and work-in-progress (WIP), finished products (FGI), and commodities (GI). Approach/Methodology/Design: Descriptive statistics and dynamic panel regression were used in analyzing the causative links between the efficiency of inventory management and profitability. The analysis was carried out on a 2013-2019 database for the Polish industrial processing sector, taking into account the size classes of enterprises. Findings: The article proves the existence of statistically significant relationships between the efficiency of total inventories and inventory components (except for finished products), on one side, and business profitability, on the other. The estimated panel regression parameters showed that the days in inventory ratios for intermediates and work-in-progress (WIPC) and raw and other materials (RMI) have the strongest correlation with profitability. Increasing the inventory days for these components had the strongest and negative impact on the return on total assets in the population surveyed and in enterprise size classes identified in this study. Practical implications: The study provides evidence for financial benefits derived from inventory performance. Also, it indicates which inventory components have the greatest impact on financial results. Originality/value: The article extends knowledge on causative links between the management of inventories and inventory components and enterprises' financial performance. It also analyzes the results of inventory management by industrial processing sub-sector and by enterprise size. The results confirm that it is advisable to adjust the volume and mix of inventories because rational inventory management practices are also a factor that empowers industrial company owners to add more value.

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“…In addition, economic uncertainty and geopolitical factors appear to affect raw material prices [50]. In this sense, the purchases of bulk material are affected as well, thus subsequently impacting warehousing costs [31]. The evidence provided by Moschovou [38] demonstrate that warehousing and other support activities for the transport sector in Greece exhibited a considerable decline between 2009 and 2013, with observed annual drops in turnover by 32.2%, 10.8%, 7.9%, 4.8%, and 7.0%, respectively.…”

Section: Warehousingmentioning

confidence: 99%

“…In particular, simulation modelling results provided by Bendavid et al [30] show that constrains in working capital lead to large inventory shortfalls and distort operational decisions, hence necessitating the deployment of a flexible and forward-looking working capital requirements approach. At a more granular level, Bendig et al [31] investigate a sample of U.S. manufacturing firms over the period 2005-2013 to examine operational risks and volatility in terms of three inventory components attributable to different supply chain echelons, namely: (i) raw materials, (ii) work-in-process, and (iii) finished goods. The study findings reveal a systematic increase of volatility in all three inventory components during the financial crisis era owing to the mismatch in the demand-supply nexus that further reflects upon investors' decisions on inventory positions.…”

Section: Inventory Managementmentioning

confidence: 99%

Logistics Services Sector and Economic Recession in Greece: Challenges and Opportunities

2018

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Abstract:The recent economic recession in Greece has had a detrimental impact on all national business activities, with the logistics industry being one of the most affected sectors primarily due to the significant decrease in market demand for goods and services. In this regard, the aim of this research is to identify key challenges and prospects for the Greek logistics services industry stemming from the recent economic crisis era through a critical literature taxonomy, a semantic analysis of the reviewed articles, and a questionnaire-based survey involving 140 executives from the third-party logistics sector. In principal, the recent economic crisis is reported to have significantly affected logistics service providers, thus further imposing structural reforms in the industry. The reduction in operating profits of transport companies is noticeable with the onset of the economic crisis, specifically in 2016. Nevertheless, logistics executives are optimistic regarding the near future, provided that educated and informed strategic management decisions are made and inventive business practices are embraced.

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Inventory component volatility and its relation to returns

Cited by 23 publications

References 67 publications

Inventory agility upon demand shocks: Empirical evidence from the financial crisis

Inventory agility upon demand shocks: Empirical evidence from the financial crisis

Does Inventory Management Improve Profitability? Empirical Evidence from Polish Manufacturing Industries

Logistics Services Sector and Economic Recession in Greece: Challenges and Opportunities

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