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

32 Pages Posted: 18 Apr 2007 Last revised: 11 Apr 2012

See all articles by Gerard P Cachon

Gerard P Cachon

The Wharton School - Operations, Information and Decisions Department

Marcelo Olivares

University of Chile; University of Chile - Engineering Department

Date Written: June 3, 2009

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.

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

Suggested Citation

Cachon, Gerard P and Olivares, Marcelo, Drivers of Finished Goods Inventory Performance in the U.S. Automobile Industry (June 3, 2009). Available at SSRN: https://ssrn.com/abstract=980728 or http://dx.doi.org/10.2139/ssrn.980728

Gerard P Cachon

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

Philadelphia, PA 19104
United States

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

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