The relationship between inventory leanness and product innovation with the contingent role of market concentration

Abstract

PurposeThis study aims to demonstrate the simultaneous effects between inventory leanness and product innovation, with market concentration being a moderator.Design/methodology/approachUsing a large panel data collected from 3071 listed manufacturing enterprises from 2004 to 2021, this research employs a simultaneous system of equations via the three-stage least square method to explore the simultaneous relationship between inventory leanness and product innovation. In addition, the moderating role of market concentration is demonstrated via one four-model system.FindingsAs its core, inventory leanness positively impacts product innovation, while product innovation negatively affects inventory leanness. Moreover, there are differential impacts of the leanness of three inventory types on product innovation. Specifically, the inventory leanness of raw material negatively affects product innovation, while the inventory leanness of work-in-process and finished goods positively affect product innovation. Further, moderation analysis highlights that market concentration is a key moderator of this relationship.Practical implicationsManagers should carefully gauge the tradeoffs between inventory leanness and product innovation. Concretely, managers ought to consider the connections between inventory types and product innovation. In addition, managers are suggested to emphasis on market strategy.Originality/valueThis paper not only contributes to the current understanding of inventory leanness by verifying the impact of inventory leanness on product innovation but also investigates the simultaneous relationship between various inventory types and product innovation. Furthermore, it empirically demonstrates the moderating effect of market concentration on the relationship between inventory leanness and product innovation.

Does lean inventory management alleviate financing constraints?

“…Rooted in inventory management theory, a firm's strategies and outcomes are intricately woven into its inventory performance, advocating optimal inventory levels as key contributors to overall performance enhancements (Wan et al, 2020). Countless empirical studies affirm the rewards of trimming inventory levels and curbing waste, manifesting in enriched financial performance, innovation, and productivity (Eroglu and Hofer, 2011;Zhu et al, 2018;Wang et al, 2023). Practically, lean inventory management is embraced by many manufacturing enterprises, seen as pivotal in fortifying internal operations and heightening industry competitiveness.…”

“…In the dynamic sphere of modern industry, enterprises continually seek strategies that not only optimize operational efficiency but also fortify financial resilience. Among these strategies, lean inventory management stands out, heralded for its capacity to curtail costs, enhance productivity, and positively influence an enterprise's financial standing (Eroglu and Hofer, 2011;Wang et al, 2023;Liu et al, 2023). However, this approach navigates a precarious balance between efficiency and risk.…”

“…Control Variables. To account for potential endogeneity issues arising from omitted variables, in line with Zhu et al (2018) and Wang et al (2023), five factors at the firm and industry levels were incorporated to control for their potential impact on enterprise size, financial status, and firm age. These control variables play a pivotal role in enhancing our understanding of this complex connection.…”

“…Countless empirical studies affirm the rewards of trimming inventory levels and curbing waste, manifesting in enriched financial performance, innovation, and productivity (Eroglu and Hofer, 2011; Zhu et al. , 2018; Wang et al. , 2023).…”

“…However, the allure of lean inventory management comes with a caveat. While reducing inventory levels promises heightened operational efficiency (Eroglu and Hofer, 2014;Elking et al, 2017;Wang et al, 2023), it also poses a serious risk of depleting resources, potentially impairing financial performance, and causing disruptive production interruptions (Eroglu and Hofer, 2011;.…”