Search

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 ...

The inventory model in this paper is targeted to production systems with constant production rates but underlying possibilities for undesirable circumstances to threaten the production schedule. The inventory policy proposed explicitly considers energy cost when determining optimal size for order quantity, safety stock and inventory cycle length such that the total expected cost per unit time is minimised. The results are compared to a traditional inventory policy that does not consider the direct impact of energy cost. An analysis of the model reveals three production environment characteristics in which inventory policies are most significantly affected by changes in energy cost: heavy product weight, high regular product demand or high emergency product demand. If any one of the three key factors increases, then changes of the inventory decisions or related logistics costs become more significant. The cost effectiveness of implementing the proposed inventory policy also becomes more significant as any ...

According to the ‘zero inventory’ paradigm, inventory reflects waste and should be eliminated in order for performance to rise. In this study, we investigate the effect of inventory holding on firm performance, analysing 3057 firm years of data. Interpreting performance as a function of inventory, results show that firms with the lowest inventory have the worst performance (and vice versa). When understanding inventory as a function of performance, results indicate that low-performing firms carry the least inventory, whereas high-performing firms have the highest stocks. Besides questions of causality, our results do not support a paradigm which suggests that firms should move toward zero inventory.

Classical inventory control, using an ex-ante optimization approach and tending to recommend large stockholdings, has been criticized over recent decades. As a result, just in time (JIT) based inve...

In a recent paper, Christy and Kanet (1990) examined the performance of several dispatching rules in a forbidden early shipment environment. Their primary performance measure was time-weighted inventory value. This study re-examines their results using a new model, with a net present value (NPV) performance measure. The results show that using NPV and inventory objectives lead to different scheduling decisions. Also examined are the reasons for relatively poor performance of operation-based due date rules.

In this article a profit maximization problem for the production firm is considered when the units produced are sold by the firm under an Order-Level-Lot-Size inventory system for the storage unit attached to the production. A numerical example is given to illustrate the results derived.

In a recent study by Gurnani (1983), ‘Economic analysis of inventory systems’, three main conclusions were presented. (1) The inventory models analysed in his paper demonstrate that the inventory policy derived from the discounted (PW) coat differs substantially from that given by the traditional undiscounted inventory analysis. (2) The difference between the two depends upon the discounting rate. The discounting causes the optimum order quantity and correspondingly the period length to vary monotonically with the discounting rate. (3) However, it is not influenced by the inventory system planning horizon. This paper first examines each conclusion and demonstrates why his conclusions are either unfounded or irrelevant to his analysis. Next, some crucial derivational errors in his exposition are demonstrated via corrected formulations. Finally, a net present value maximizing framework that is consistent with modern theory of financial analysis, is suggested for the economic analysis of inventory s...

An implicit assumption underlying most inventory systems is that the lot ordered will not contain any defective, i.e., unsaleable items when delivered and so there will be no ‘shortages’ in the delivery in the sense that every unit of the product in the accepted lot is of perfect quality and therefore fully acceptable to the customers. Such an assumption is not always tenable in view of the extensive use of acceptance sampling by business and industry in the quality control process. The presence of defective items in the traditional inventory models which foresee no such possibility would certainly disrupt the systems in use, and consequently entail higher operating cost on the inventory management. With an aim to broaden the base of applications, and to demonstrate the impacts of the possible presence of defective products upon the structure and the cost of certain inventory systems, this paper extends two inventory models to the case where the proportion of defective units in the accepted lot is a rando...

Traditional inventory analysis is based on undiscounted constant cycle costs. Often it has been argued that incorporating the time value of money will not have a significant effect on the lot size. This paper presents discounted cost analysis of a few inventory models. Effect of discounting rate on the economic order quantity is studied. Alternative discounted profit functions are also given