Linking inventory efficiency, productivity and responsiveness to retail firm outperformance: empirical insights from US retailing segments

Abstract

This paper establishes an empirical model linking a retail firm’s inventory management effectiveness to superior competitive operational performance for specific product-line retail segments. Using 16 years of US retail firm financial data from the COMPUSTAT Fundamentals database across 12 distinct competitive retailing segments, we develop and test a time-series model that links several inventory management execution measures to the competitive operational outperformance of retail firms. The analysis presented provides strong evidence that measures of inventory management performance are not ‘one size fits all’ for the retail industry, and helps to explain why extant research has had difficulty linking inventory control policy effectiveness to operational performance advantages in retailing. We discuss the implications of these empirical findings on the study of inventory policy execution, and offer some guidance for further research.

Keywords:

• inventory
• inventory management
• competitive performance
• retailing
• inventory efficiency
• inventory productivity
• inventory responsiveness

Notes

1. Both Gage (2007) and Kesavan, Gaur, and Raman (2010) discuss the importance of adjusting for operating lease present value when conducting capital analysis among different retailers. Our calculation only differs from Kesavan, Gaur, and Raman (2010) in that we do not divide by the number of stores since our analysis is not at the store-level.