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

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 makes, Chrysler, Ford and General Motors.

Number of Pages in PDF File: 32

Keywords: Empirical, supply chain management, product variety, inventory theory, manufacturing flexibility

working papers series