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Determinants of Inventory Trends in the Indian Automotive Industry: An Empirical Study

Inventory management has emerged as one of the important tools to improve operational efficiency over the last 30-40 years across the globe. Japanese companies such as Toyota pioneered lean manufacturing, which emphasizes on the need to maintain low inventory levels across the supply chain through practices such as JIT, Kanban, vendor-managed inventory, etc. Anecdotal evidence suggests that, inventory levels in general have been falling in the Indian manufacturing industries too in the recent past. The Japanese influence on the Indian manufacturing industry began with the entry of Suzuki into the Indian automobile industry in the mid-eighties. Since then, the principles of lean manufacturing have permeated across many industries, especially the automotive sector in India. However, there is scant empirical research in the literature that documents the inventory trends and the determining factors in India. This study aims at filling this gap through a comprehensive inventory trend analysis in the Indian automotive industry during the 14-year-period, i.e., 1992-2005 with an objective to determine the inventory trends and identify the influencing factors. We use advanced econometric models to study the impact of various factors, such as the firm's cluster, tier, export and import intensity on inventory levels. The study finds that average inventory has been steadily declining, with all three inventory components, viz., raw material, work-in-process and finished goods inventory contributing to this decline. The results suggest that the efficient working capital management and the quality improvement efforts of Tier 1 firms have been one of the major contributions to the decline in average inventory levels in the Indian auto industry.
Project Team
Haritha Saranga, Arnab Mukherji and Janat Shah
Sponsor
SCM Centre
Select Project Type
Ongoing Projects
Project Status
Ongoing
Funded Projects Functional Area
Production & Operations Management

Determinants of Inventory Trends in the Indian Automotive Industry: An Empirical Study

Project Team: Haritha Saranga, Arnab Mukherji and Janat Shah
Sponsor: SCM Centre
Project Status: Ongoing
Area: Production & Operations Management
Abstract:
Inventory management has emerged as one of the important tools to improve operational efficiency over the last 30-40 years across the globe. Japanese companies such as Toyota pioneered lean manufacturing, which emphasizes on the need to maintain low inventory levels across the supply chain through practices such as JIT, Kanban, vendor-managed inventory, etc. Anecdotal evidence suggests that, inventory levels in general have been falling in the Indian manufacturing industries too in the recent past. The Japanese influence on the Indian manufacturing industry began with the entry of Suzuki into the Indian automobile industry in the mid-eighties. Since then, the principles of lean manufacturing have permeated across many industries, especially the automotive sector in India. However, there is scant empirical research in the literature that documents the inventory trends and the determining factors in India. This study aims at filling this gap through a comprehensive inventory trend analysis in the Indian automotive industry during the 14-year-period, i.e., 1992-2005 with an objective to determine the inventory trends and identify the influencing factors. We use advanced econometric models to study the impact of various factors, such as the firm's cluster, tier, export and import intensity on inventory levels. The study finds that average inventory has been steadily declining, with all three inventory components, viz., raw material, work-in-process and finished goods inventory contributing to this decline. The results suggest that the efficient working capital management and the quality improvement efforts of Tier 1 firms have been one of the major contributions to the decline in average inventory levels in the Indian auto industry.