Inventory Management Behavior of American and Japanese Firms
Posted: 28 May 2013 Last revised: 30 May 2013
Date Written: September 24, 1988
Firms view inventory/sales ratios as main decision variables. These ratios are also important in forecasting business activity. Understanding these ratios seems particularly relevant since many U.S. firms are beginning to implement the “just-in-time” production and inventory system that some see as the key to the typically lower inventory/sales ratios of Japanese firms. In this paper we present a partial adjustment model which can empirically characterize differences in the inventory behavior of U.S. and Japanese firms. Two key parameters estimated are the desired inventory/sales ratio and the speed of adjustment of the actual to the desired inventory/sales ratio. We find that Japanese firms in many industries have lower desired inventory/sales ratios and higher speeds of adjustment than U.S. firms. Simulation analyses are used to validate key assumptions of our model.
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