Presentation Title

Performance Outcomes of Volume Flexibility and Inventory Strategies: The Contingent Role of Environmental Uncertainty

Location

Room 2905 B

Session Format

Paper Presentation

Research Area Topic:

Business Administration - Logistics

Abstract

Background

Environmental uncertainty has long been considered a contingency variable that significantly influences firms’ manufacturing strategies. Specifically, high levels of uncertainty compel manufacturing firms to adopt strategies to buffer for uncertainty through a combination of volume flexibility and inventory. When operating in low levels of uncertainty, firms may adopt strategies that focus on issues other than survival.

Research Objectives

This study quantifies the performance effect of a manufacturing firm’s inventory and volume flexibility strategy along differing levels of environmental uncertainty. Three dimensions of environmental uncertainty, specifically, industry dynamism, competitive intensity, and munificence, are analyzed separately. Finally, for a robust analysis, the performance effect of a firm’s inventory and volume flexibility firms in the most hostile and least hostile environments is quantified.

Study Design

This study utilized moderated polynomial regression and response surface methodology. Inventory efficiency, volume flexibility and environmental uncertainty are calculated and form the exogenous variables. Firm performance, as measured by the operating income to asset ratio forms the explanatory variable. Control variables for firm size, market share, industry differences, and financial distress are also utilized.

Datasets and Source

We utilized the COMPUSTAT database for our source of data. We restricted our sample to manufacturing firms (NAICS codes 31-33), over the period of 1991-2014.

Analysis

This study utilized five regressions. Three to capture the relationship between inventory, flexibility and performance along the three individual dimensions of uncertainty, while the final two capture the inventory-flexibility relationship with the most hostile and least hostile environments, respectively.

Principal Findings and Conclusion

In general, our findings suggest that manufacturing firms in uncertain environments need more buffers in more uncertain environments to achieve superior performance.

Implications and Learning Objectives

A key implication is that firms in uncertain environments can benefit from disposing of inventory with high investments in flexibility.

Keywords

Flexibility, Inventory, Regression, Response surface methodology

Presentation Type and Release Option

Presentation (Open Access)

Start Date

4-24-2015 9:30 AM

End Date

4-24-2015 10:30 AM

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Apr 24th, 9:30 AM Apr 24th, 10:30 AM

Performance Outcomes of Volume Flexibility and Inventory Strategies: The Contingent Role of Environmental Uncertainty

Room 2905 B

Background

Environmental uncertainty has long been considered a contingency variable that significantly influences firms’ manufacturing strategies. Specifically, high levels of uncertainty compel manufacturing firms to adopt strategies to buffer for uncertainty through a combination of volume flexibility and inventory. When operating in low levels of uncertainty, firms may adopt strategies that focus on issues other than survival.

Research Objectives

This study quantifies the performance effect of a manufacturing firm’s inventory and volume flexibility strategy along differing levels of environmental uncertainty. Three dimensions of environmental uncertainty, specifically, industry dynamism, competitive intensity, and munificence, are analyzed separately. Finally, for a robust analysis, the performance effect of a firm’s inventory and volume flexibility firms in the most hostile and least hostile environments is quantified.

Study Design

This study utilized moderated polynomial regression and response surface methodology. Inventory efficiency, volume flexibility and environmental uncertainty are calculated and form the exogenous variables. Firm performance, as measured by the operating income to asset ratio forms the explanatory variable. Control variables for firm size, market share, industry differences, and financial distress are also utilized.

Datasets and Source

We utilized the COMPUSTAT database for our source of data. We restricted our sample to manufacturing firms (NAICS codes 31-33), over the period of 1991-2014.

Analysis

This study utilized five regressions. Three to capture the relationship between inventory, flexibility and performance along the three individual dimensions of uncertainty, while the final two capture the inventory-flexibility relationship with the most hostile and least hostile environments, respectively.

Principal Findings and Conclusion

In general, our findings suggest that manufacturing firms in uncertain environments need more buffers in more uncertain environments to achieve superior performance.

Implications and Learning Objectives

A key implication is that firms in uncertain environments can benefit from disposing of inventory with high investments in flexibility.