What Can Be Learned from Classical Inventory Models? A Cross-Industry Exploratory Investigation

: Classical inventory models offer a variety of insights into the optimal way to manage inventories of individual products. However, top managers and industry analysts are often concerned with the aggregate macroscopic view of a firm’s inventory rather than with the inventories of individual products. Given that classical inventory models often do not account for many practical considerations that a company’s management faces (e.g., competition, industry dynamics, business cycles, the financial state of the company and of the economy, etc.) and that they are derived at the product and not at the firm level, can insights from these models be used to explain the inventory dynamics of entire companies? This exploratory study aims to address this issue using empirical data. We analyze absolute and relative inventories using a quarterly data panel that contains 722 public US companies for the period from 1992 to 2002. We have chosen companies that are not widely diversified and whose bu...

• Type: Journal
• Year: 2007
• Where: MSOM
• Authors: Sergey Rumyantsev, Serguei Netessine
• Keywords: Classical Inventory Models, Individual Products, Inventory, MSOM 2007