Inventory in Times of War

Andres F. Jola-Sanchez () and Juan Camilo Serpa ()
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Andres F. Jola-Sanchez: Mays Business School, Texas A&M University, College Station, Texas 77843
Juan Camilo Serpa: Desautels Faculty of Management, McGill University, Montreal, Quebec H3A 1G5, Canada

Management Science, 2021, vol. 67, issue 10, 6457-6479

Abstract: Using data from 38,916 businesses in war-torn Colombia and from 5,138 attacks by the two rebel groups, FARC and ELN, we study how firms manage inventory during civil war. We obtain exogenous variation in the conflict intensity via a difference-in-differences model, which hinges on the peace process between Colombia’s government and FARC. Relying on this identification strategy, we hypothesize and show that war causes two effects on firm-level inventories. First, it leads firms to replace physical assets (inventory) with fungible assets (cash), causing them to operate with an oversecured financial buffer, but a fragile operational buffer. Second, this inventory reduction occurs mostly in unprocessed inventories (finished-goods inventories are insensitive to violence), meaning that, although war-torn businesses are equipped to fulfill planned orders, they become inflexible at handling uncertain future demand. We then show that the magnitude of these effects is highly contingent on the firm’s position in the supply chain, its proximity to distribution markets, and the type of attacks it is subject to. We then propose policies to address war-related risk in supply chains.

Keywords: inventory management; disaster and conflict management; causal inference models; empirical operations management (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:67:y:2021:i:10:p:6457-6479

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