Kai Hoberg

Inventory management under financial distress: an empirical analysis

This study analyses inventory reductions as a means of short-term financing of firms under financial distress. We use quarterly panel data of U.S. manufacturing firms for the period from 1995 to 2007. We identify a sample of 198 distressed firms for which we analyse changes in relative inventory. Approximately 70% of distressed firms reduce their inventories until the end of their individual distress periods. This decrease corresponds to a mean reduction of 18.7 inventory days or 9.4%. Additional regression analyses show that differences in inventory adjustments depend on pre-distress inventory performance, firm size, and turnaround strategy. We also compile a sample of 142 firms that defaulted to analyse inventory actions of unsuccessful turnarounds. Our findings indicate that defaulting firms also reduce their inventories but that the reductions are lower than those of firms that resolve their financial distress. We conclude that distressed firms use short-term inventory adjustments to free up cash and to achieve long-term efficiency gains from inventory optimisation. Our findings suggest that inventory optimisation is an essential part of a complete and successful turnaround strategy and financially distressed firms should always consider this action as a means to prevent bankruptcy.

The inverse hockey stick effect: an empirical investigation of the fiscal calendar’s impact on firm inventories

We empirically investigate how manufacturers’ inventory decisions relate to the fiscal calendar. Although optimal firm inventories should depend on demand and supply, we find that the artificial accounting construct of the fiscal year frequently drives inventory dynamics. In an effort to manage earnings and cash flows (CFs) towards the fiscal year-end (FYE), firms significantly reduce their inventories in the fourth fiscal quarter only to increase their inventories in the next fiscal year. Using a sample of 4877 US manufacturing firms for the period 1990–2010, we find that inventories are 3.9–6.0% lower on average in the fourth fiscal quarter. In the analysis, we control for inventory theory-related factors that have been identified in prior literature. Because this pattern is the inverse of that observed for sales, we refer to this phenomenon as the inverse hockey stick effect. The effect holds for all three individual inventory types: raw materials, work in progress and finished goods. We find that inventory reductions in the fourth fiscal quarter are particularly substantial if firms have an incentive to beat CF targets. In contrast to our expectations, we do not find evidence that financial distress links to inventory reductions at the FYE.

How do financial constraints and financing costs affect inventories? An empirical supply chain perspective

Purpose The purpose of this paper is to identify the interplay between a firm’s financial situation and its inventory ownership in a single-firm and a two-firm perspective. Design/methodology/approach The analysis uses different secondary data sources to quantify the effect of both financial constraints and cost of capital on inventory holdings of public US firms. The authors first adopt a single-firm perspective and analyze whether financial constraints and cost of capital do generally affect the amount of inventory held. Next, the authors adopt a two-firm perspective and analyze the inventory ownership in customer-supplier relationships. Findings Inventory levels are affected by financial constraints and cost of capital. Results indicate that higher costs of capital are weakly associated with lower inventories. However, contrary to the authors’ expectations, firms that are less financially constrained hold less inventories than firms that are more financially constrained. Finally, the authors find that customers hold the larger fraction of supply chain inventory in supplier-customer dyads. Practical implications The authors’ results indicate that financial considerations generally play a role in inventory management. However, inventory holdings seem to be influenced only slightly by financing costs and inventory holdings between supplier and customer seem to be less than optimal from a financial perspective. Considering those financial aspects can lead to relevant financial advantages. Originality/value In contrast to other recent research, the authors study how the financial situation of a firm affects its inventory levels (not vice versa) and also consider inventories from a two-firm perspective.

An inventory control model for modal split transport: A tailored base-surge approach

Firms are increasingly interested in transport policies that enable a shift in cargo volumes from road (truck) transport to less expensive, more sustainable, but slower and less flexible transport modes like railway or inland waterway transport. The lack of flexibility in terms of shipment quantity and delivery frequency may cause unnecessary inventories and lost sales, which may outweigh the savings in transportation costs. To guide the strategic volume allocation, we examine a modal split transport (MST) policy of two modes that integrates inventory controls.We develop a single-product–single-corridor stochastic MST model with two transport modes considering a hybrid push–pull inventory control policy. The objective is to minimize the long-run expected total costs of transport, inventory holding, and backlogging. The MST model is a generalization of the classical tailored base-surge (TBS) policy known from the dual sourcing literature with non-identical delivery frequencies of the two transport modes. We analytically solve approximate problems and provide closed-form solutions of the modal split. The solution provides an easy-to-implement solution tool for practitioners. The results provide structural insights regarding the tradeoff between transport cost savings and holding cost spending and reveal a high utilization of the slow mode. A numerical performance study shows that our approximation is reasonably accurate, with an error of less than 3% compared to the optimal results. The results also indicate that as much as 85% of the expected volume should be split into the slow mode.

Logistics competencies, skills, and training : a global overview

Logistics has been a major growth sector in the world economy in terms of levels of activity and expenditure for many decades. In addition to being an important sector in its own right, logistics strongly influences the economic performance of other industries and the countries in which they are located. The logistics sector’s recruitment potential is often constrained by its relatively poor image. Career planning can also be deficient, with the result that some high-caliber operatives and managers abandon logistics for other roles. The report provides perception survey data on the current supply of and demand for qualified logistics personnel across the four occupational levels and around the globe. Furthermore, it sheds light on the current state of training, recruitment, retention, and related challenges in the logistics and supply chain management (SCM) field. The report is structured as follows: chapter one gives introduction, chapter two introduces the methodology implemented in the report and the sources of data and information. Chapter three discusses the results of surveys on logistics competence requirements and shortages across all world regions. Chapter four includes sector case studies in the trucking industry and humanitarian logistics sectors. Chapter five addresses training and skills development sources of training, stakeholders, and best practices. Chapter six sheds light on recruitment and retention strategies. Chapter seven provides guidance and recommendations for public sector institutions. Chapter eight presents a logistics competence matrix, a framework that enables stakeholders to self-assess the level of logistics competence in their country and provides a brief overview for possible activities to raise the competence level. Chapter nine summarizes the report.

Disentangling supply chain management competencies and their impact on performance: A knowledge-based view

Purpose The purpose of this paper is to extend the understanding of supply chain management (SCM) competencies by splitting them into individual and organizational components and measuring their impact on SCM performance. Design/methodology/approach Hypothesized relationships are tested using structural equation modeling and bootstrapping mediation analysis based on a multi-national survey with 273 managers while drawing on the theory of knowledge management and literature streams of individual competencies in the fields of SCM and human resource management (HRM), respectively. Findings The analysis reveals that individual SCM competencies and organizational SCM knowledge positively influence SCM performance to a similar magnitude. Moreover, organizational learning enhances individual competencies and organizational knowledge significantly and equally while corporate training programs fall surprisingly short of expectations. The disentanglement of SCM competencies renders HRM’s contribution to SCM visible by revealing the impact of HRM and learning practices on competencies, knowledge, and performance. Research limitations/implications To validate the findings, future research could apply different research methods such as case studies and focus on more countries to reduce potential methodological and regional biases. Practical implications The results suggest that corporate training programs need further development. Organizational learning’s strong direct and indirect effects have two main implications: first, it should serve as motivation for organizations to constantly improve their learning capabilities. Second, these only tap its true potential for enhancing SCM performance if they first elevate individual competencies and organizational knowledge. Originality/value This is the first paper to distinguish between individual competencies and organizational knowledge on finely nuanced levels. While the organizational knowledge level effect on performance has been studied before, this paper extends this effect to also hold true for the individual level.