The Empirical Determinants of Inventory Levels in High‐volume Manufacturing

This study uses survey data on several hundred automotive suppliers in North America to evaluate the determinants of inventory levels in high‐volume discrete parts manufacturing. We assess the magnitude of raw materials, work‐in‐process, and finished goods inventories held at automotive supply plants. Inventories are shown to be jointly determined by technological and managerial factors in a manner roughly consistent with classical inventory theory. Several categories of managerial practices are found to be important. Low inventories are linked to employee problem solving and frequent communication with customers. More unexpectedly, we find the absence of inventory differences between U.S.‐owned and Japanese‐owned plants in North America. This contrasts with substantial differences in inventory holding between US plants and those in Japan.