In this paper, we analyze a model that states that investing in progressive manufacturing programs, combined with a modern approach to supplier issues, has a direct effect on inventory level and structure, which in turn directly affects delivery service and delivery related competitive advantages. The model was tested on data from the Global Manufacturing Research Group. This data was broken up into three groups: the United States, Western Europe and Transitional Economies of Central and Eastern Europe. The results of a set correlation analysis showed that in all three groups of countries: (1) investing in progressive manufacturing programs and using modern approaches in dealing with suppliers were significantly linked to inventory level and structure; (2) inventory level and structure were linked to delivery service; (3) delivery service was related to competitive advantage. Companies from the transitional economies differed from the other two groups in that they did not show a relationship between inventory structure and competitiveness. This may demonstrate that management in transitional economies may still be working to achieve a more successful linkage between inventory structure and competitiveness.
This paper presents a cross-country comparison of inventories in specific manufacturing industries. More specifically, we take a look at the idea of “inventory structure”, which is the relative levels of raw materials, work in process and finished goods in the total inventory. We use this to compare the market economy of the United States, Western European market economies, and “transitional” economies (i.e., formerly communist countries in Eastern Europe). Issues of customer service in these countries are also discussed. What we are asking in this paper is, first, whether inventory structure is related to competitiveness. Then, we investigate if the formerly centrally planned economies implemented progressive management concepts, would they succeed in producing an inventory structure similar to that of the market economies, which in turn would lead to greater customer service and thus, competitiveness.
This study tested hypotheses that previous research has attempted to answer, with the intent if seeing of the conclusions drawn in previous studies still hold. Dubin [1] discussed the importance of replication, yet this is not something that is commonly observed in our field. It is hoped that this paper will show the usefulness of replication, and lead to further insights into the inventory structures and customer service levels that exist at a country level.
As noted by Chikán [2], the general theory of inventories is still mostly unexplored from the viewpoint of cross-country comparison. Since that article, there has not been much additional research in this area. This is somewhat disappointing, as we had a very interesting development over this period of time, namely the conversion of a number of economies from begin centrally planned to being market-based. As Chikán [3] stated in a later article, formerly centrally planned economies underwent three dramatic changes:
(1) Paternalistic state behavior stopped. That is, government subsidies were reduced or stopped altogether.
(2) Extended privatization started. In essence, this is the ultimate stoppage of government subsidies, as formerly government-controlled firms moved toward market control.
(3) Restructuring of production was necessary. As firms would more and more have to answer to the consumer, and not to the central planner, a new paradigm of production was required in the formerly centrally planned economies.
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Each country went about this change differently, as has been well documented by the popular business press. For instance, Poland went through what has been described as “shock therapy”, while on the other end of the scale, Hungary started market reforms in the 1960s. Russia's transition has been somewhere in between.
The operations management community has had not much to say about the issue of transition economies and the inventory structures of these countries. As an example, using the search term “transition economy and inventory” on the popular ABI Inform database yielded three hits when done in mid-1999. This paper should thus help fill a gap in the literature.
In this paper, a cross-country and cross-group analysis of inventory structure and delivery service measures was carried out. One obvious conclusion from our research is the continued importance of inventory management due to its large effects on customer service. We expected to see that transition economies are beginning to resemble market economies more. Although as a group the transitional economies made good progress toward reaching the inventory levels and structures of the market economies, they are not there yet. To a certain extent, the results of this study offer a confirmation of recent trends. The logic behind the recent trends toward moving towards increased outsourcing and single sourcing agreements with suppliers is that these actions reduce the work in process inventory level and through reduced WIP level, the delivery service can be improved.
Further research should include the use of longitudinal data sets. In particular, a data set containing data from before, during and after the fall of the communist governments in the transitional economies would be especially interesting. This type of data set should be able to quite clearly show the effects of centrally planning on inventory structure, and in turn, customer service. Also, the use of such techniques as structural equation modeling would be appropriate for analyzing the concepts and relationships discussed in this study.
