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

Management Science, Vol. 56, No. 1, pp. 202-216, January 2010

Columbia Business School Research Paper No. 11-25

15 Pages Posted: 20 Oct 2011

See all articles by Marcelo Olivares

Marcelo Olivares

University of Chile; University of Chile - Engineering Department

Gerard P Cachon

The Wharton School - Operations, Information and Decisions Department

Date Written: January 1, 2010

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.

Suggested Citation

Olivares, Marcelo and Cachon, Gerard P, Drivers of Finished-Goods Inventory in the U.S. Automobile Industry (January 1, 2010). Management Science, Vol. 56, No. 1, pp. 202-216, January 2010, Columbia Business School Research Paper No. 11-25, Available at SSRN: https://ssrn.com/abstract=1946445

Marcelo Olivares (Contact Author)

University of Chile ( email )

Pío Nono Nº1, Providencia
Santiago, R. Metropolitana 7520421
Chile

University of Chile - Engineering Department ( email )

Republica 701 Santiago
Chile

Gerard P Cachon

The Wharton School - Operations, Information and Decisions Department ( email )

Philadelphia, PA 19104
United States

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