Report on Goods Inventory in the U.S. Automobile Industry

Automobile manufacturers in the U.S. supply chain exhibit significant differences in their days of supply of finished vehicles (average inventory divided by average daily sales rate). For example, from 1995 to 2004, Toyota consistently carried approximately 30 fewer days of supply than General Motors. This suggests that Toyota’s well-documented advantage in manufacturing efficiency, product design, and upstream supply chain management extends to their finished-goods inventory in their downstream supply chain from their
assembly plants to their dealerships.

Our objective in this research is to measure for this industry the effect of several factors on inventory holdings. We find that two factors, the number of dealerships in a manufacturer’s distribution network and a manufacturer’s production flexibility, explain essentially all of the difference in finished-goods inventory between Toyota and three other manufacturers: Chrysler, Ford, and General Motors.

The auto industry is clearly important to the overall world economy, and it has been a source of many innovations
in product design and manufacturing technology (e.g., the assembly line, just-in-time inventory, kanban, etc.). As a result, it has been the subject of numerous empirical studies.

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However, most of these studies have been centered on analyzing the production and procurement processes (e.g., Lieberman et al. 1990, Lieberman and Asaba 1997) or the new product development process (e.g., Clark and Fujimoto 1989). Little attention has been placed on the management of the finished goods from the assembly plant down to the consumer, which is the focus of this paper.

Most studies of operational performance in the auto industry have focused on the assembly plant or on the product design process rather than finished goods in the downstream supply chain.




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