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An International Meeting of American Accounting
Association
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The relationship between a managerial focus on inventory reduction and value added |
Vedran Capkun
HEC - University Of Lausanne
Ari - Pekka Hameri
HEC - University Of Lausanne
Lawrence A Weiss
HEC - University of Lausanne
Abstract: This paper examines the relationship between a managerial focus on reducing inventory and improvements in value added. We analyze financial information on large non-service US based firms over the 25 year period from 1980 to 2004. Our results show a very strong correlation between the increase in value added and the decrease in days of inventory speed across all manufacturing industries. The results strongly support the operations management literature which claims a managerial focus on efficiency, in particular increasing the speed of operations, will result in significant value creation for firms. The results also imply that the concept of competition based on operational speed has not been transferred across all firms and the potential for improvement still exits in most industries.