Inventory management: Is there a knock-on effect?

Over the last several years a number of independent empirical studies have shown that organizational performance is related to a portfolio of management techniques, clearly demonstrating that there is no single “silver bullet.” In fact, these studies indicate that performance is positively correlated with the number of techniques employed and the depth of their implementation. Operational outcomes in areas like product quality, on-time delivery and productivity, as well as market measures like margins and export sales are both positively related to the implementation of a variety of techniques. This paper explores the relationship between the use of effective inventory management practices (as reflected in inventory turnover) and the implementation of other manufacturing practices. The hypothesis is that effective inventory management practices have a positive knock-on effect on the implementation of other practices. Since organizational performance is related to the implementation of multiple practices, the knock-on effect should have a positive effect on performance as well. The results show that inventory turnover is significantly related to the implementation of other techniques and weakly related to an index of overall company performance. This suggests a positive knock-on effect, but that it takes more than inventory management to achieve high levels of performance. Having established the knock-on relationship adds more evidence to the notion that management excellence in one area begets management excellence in others.