Does Effective Inventory Management Improve Profitability?: Empirical Evidence from U.S. Manufacturing Industries

Hojung Shin, Charles C. Wood and Minjoon Jun
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Hojung Shin: Department of LSOM, Korea University, Seoul, Korea
Charles C. Wood: Department of Information Systems Management, Duquesne University, Pittsburgh, PA, USA
Minjoon Jun: Department of Management (MSC 3DJ), New Mexico State University, Las Cruces, NM, USA

International Journal of Information Systems and Supply Chain Management (IJISSCM), 2016, vol. 9, issue 3, 26-45

Abstract: The present research investigates the effect of inventory performance on profitability. The objective is to find empirical evidence for the theory that operational excellence in inventory management improves profitability in the long run. To this end, the authors examine industry level longitudinal data (14 manufacturing industries at the SIC two-digit level) over the 1958-1999 period by employing a series of hierarchical regression analyses. The statistical results confirm that a lower inventory level measured as the industry inventory-to-sales ratio has a positive effect on industry profitability measured as the profit-to-sales ratio. This evidence is found significant in 9 out of the 14 U.S. manufacturing industries. This study also reveals that not all the inventories, categorized by stage of fabrication, equally contribute to improving industry profitability. For instance, the profitability of the primary and fabricated metal industries has benefited from reductions in finished goods inventories, whereas that of the petroleum and coal products industry has been affected mainly by declines in work-in-process inventories.

Date: 2016
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