Kevin B. Hendricks

Firm characteristics, total quality management, and financial performance

Abstract This paper uses a sample of quality award winners to empirically test hypotheses that relate changes in operating income associated with effective implementation of total quality management (TQM) to various firm characteristics. The characteristics examined are firm size, the degree of capital intensity, the degree of diversification, the timing of TQM implementation, and the maturity of the program. We find that smaller firms do significantly better than larger firms. Firms that have won awards from independent award (a proxy for more mature TQM implementation) do significantly better than just supplier award winners. The evidence weakly supports the hypotheses that less capital-intensive firms do better than more capital-intensive firms, and more focused firms do better than more diversified firms. Finally, we do not observe any significant differences between the performance of earlier and later implementers of effective TQM. The key implications of these results are that many organizational characteristics moderate the benefits of TQM implementation. Although not all of these characteristics are controllable by managers, managers must set realistic expectations for the degree of benefits from TQM. The results for size and capital-intensity validate the importance of TQM practices for smaller firms and environments that are more labor intensive. Investing to achieve a broader, deeper, and more mature TQM implementation (possibly by targeting an independent TQM award) should also result in higher benefits from TQM implementation. Furthermore, the results indicate that it is never too late to invest in TQM.

Association Between Supply Chain Glitches and Operating Performance

This paper empirically documents the association between supply chain glitches and operating performance. The results are based on a sample of 885 glitches announced by publicly traded firms. Changes in various operating performance metrics for the sample firms are compared against a sample of control firms of similar size and from similar industries. In the year leading up to the announcement, the control-adjusted mean percent changes in operating income, return on sales, and return on assets for the sample firms are -107%, -114%, and -92%, respectively. During this same period, the control-adjusted changes in the level of return on sales and return on assets are -13.78% and -2.32%, respectively. Relative to controls, firms that experience glitches report on average 6.92% lower sales growth, 10.66% higher growth in cost, and 13.88% higher growth in inventories. More importantly, firms do not quickly recover from the negative economic consequences of glitches. During the two-year time period after the glitch announcement, operating income, sales, total costs, and inventories do not improve. We also find that it does not matter who caused the glitch, what the reason was for the glitch, or what industry a firm belongs to--glitches are associated with negative operating performance across the board.

The Long-Run Stock Price Performance of Firms with Effective TQM Programs

This paper documents the long-run stock price performance of firms with effective Total Quality Management (TQM) programs. The winning of quality awards is used as a proxy for effective TQM implementation. We compare stock price performance of award winners against various matched control groups for a five-year implementation period and a five-year postimplementation period. During the implementation period there is no difference in the stock price performance, but during the postimplementation period award winners significantly outperform firms in the various control groups. Depending on the control group used, the mean outperformance ranges from 38% to 46%. Our results clearly indicate that effective implementation of TQM principles and philosophies leads to significant wealth creation. Furthermore, our results should alleviate many of the concerns regarding the value of quality award systems. Overall, these systems are valuable in terms of recognizing TQM firms and promoting awareness of TQM.

The Effect of Product Introduction Delays on Operating Performance

This paper provides empirical evidence on the effect of product introduction delays on accounting-based measures of operating performance. Based on a diverse set of 450 publicly traded firms that experienced product introduction delays, we find that delays have a statistically significant negative effect on profitability. Depending on the method used to estimate abnormal performance, the median abnormal decline in return on assets (ROA) ranges from 2.70% to 3.44% over a three-year period around the year of the delay announcement. The median decline in sales over assets ranges from 5.92% to 10.99%, and the median decline in return on sales ranges from 1.48% to 3.06%. Cross-sectional regression analysis indicates that the impact of delays on abnormal ROA is more negative for smaller firms, and for firms that are more profitable before the delay. Furthermore, the impact is more negative for firms that operate in industries that are larger and more profitable. We also find a positive association between abnormal ROA and abnormal stock price performance around the product introduction delay announcements.

Demand-Supply Mismatches and Stock Market Reaction: Evidence from Excess Inventory Announcements

This paper documents that excess inventory announcements, an indication of demand-supply mismatch, are associated with an economically and statistically significant negative stock market reaction. The results are based on a sample of 276 excess inventory announcements made during 1990--2002. Over a two-day period (the day of the announcement and the day before the announcement) the mean (median) stock market reaction ranges from -6.79% to -6.93% (-4.51% to -4.79%), depending on the benchmark used to estimate the market reaction. The percent of sample firms that experience negative market reaction ranges from 73% to 74%. When excess inventory is at the announcing firms customers, the market reaction is more negative than when the excess inventory is at the announcing firm. The stock market reaction is less negative for excess inventory announcements made by larger firms but is more negative for firms with higher growth prospects and with higher debt-equity ratios.

The effect of supply chain disruptions on shareholder value

This paper estimates the shareholder wealth affects of supply chain disruptions. The results are based on a sample of 838 disruption announcements made during 1989–2001. Shareholder wealth affects are estimated by computing the abnormal stock returns (actual returns adjusted for industry and market-wide influences) around the date when information about disruptions is publicly announced. Supply chain disruption announcements are associated with an abnormal decrease in shareholder value of 10.28%. We find that larger firms experience a less negative market reaction, and firms with higher growth prospects experience a more negative reaction. We also provide descriptive results on how sources of responsibility and reasons for disruptions affect shareholder wealth.

The impact of capacity expansion on the market value of the firm

Abstract This paper empirically investigates the impact of capacity expansion decisions on the market value of the firm. Event study methodology is used to estimate the abnormal change in stock prices around capacity expansion decision announcements. On the day of the announcement, the magnitude of the price change is abnormally high, evidenced by a significantly positive mean standardized square of the abnormal change (Beavers U-statistic). We also analyze factors that we could affect the direction and magnitude of the abnormal change in the stock prices. We find that the change in price on the day of the announcement is positively and significantly related to the real growth rate of the industry, and negatively and significantly related to the variability of demand. A negative relationship between the price change and industry capacity utilization is also found which can have important implications for companies which follow the wait-and-see approach to capacity expansion decisions. We also find management ownership to be a significant predictor in explaining stock price changes around these announcements.

An Empirical Investigation on the Appointments of Supply Chain and Operations Management Executives

This paper provides empirical evidence on the performance effects and choice of appointments of supply chain and operations management executives (SCOMEs). The analysis is based on a sample of 681 SCOME appointments that were publicly announced during the 2000–2011 period. We find that the stock market reaction is positive on the day of the announcement. Categorizing the SCOME appointments as new or old and insider or outsider, we find that the market reaction for newly created SCOME positions is positive. The market also reacts more positively when a SCOME is an outsider rather than an insider. The strongest positive reaction is observed when outsiders are hired for newly created SCOME positions. We find evidence of both poor stock price performance and poor operating performance in the period preceding the appointment of new SCOMEs. New SCOME appointments are not followed by an immediate improvement in stock price and operating performance. However, there is no further decline in performance, suggesting...

Supply Chain Disruptions and Corporate Performance

Managers are becoming increasingly aware that their companys reputation, earnings consistency, and ability to deliver better shareholder returns are increasingly dependent on how well they manage supply chain disruptions. Although firms have always faced the risk of supply chain disruptions, the attention it receives has increased dramatically in recent years. This is likely driven by at least four developments. First, supply chains have become more complex due to globalization, outsourcing, single sourcing, and the focus on removing slack from supply chains. While many of these strategies have improved performance, these strategies have also made supply chains more prone to disruptions.

Using state-dependent processing rates to emulate SPT queue discipline in an FCPS queueing network

Using the ‘shortest processing time’ queue discipline results in long queues being quickly reduced as the short jobs are quickly pushed through the system. We approximate this effect under the ‘first-come, first-served’ queue discipline by having the service rate increase with the queue length. That is, instead of picking the shortest job, the server instead picks the first job, but then processes it at a higher rate. This new load-dependent queue is compared with the original queue both individually and within open queueing networks.