Uncertainty shocks, network position, and inventory

Abstract

Purpose This paper aims to conduct an empirical study to investigate whether an industry’s position affects the transmission of information and economic shocks. Design/methodology/approach This paper conducts an empirical study of inventory performance based on a large panel of 71 industries in the manufacturing, wholesale and retail sectors over a 10-year period (2007–2016). Findings It is found that the position of a focal industry in the supply chain network moderates the impacts of macroeconomic uncertainty shocks and shocks from supplier/customer industries on the focal industry’s inventory. On the one hand, more central industries are more sensitive to macroeconomic uncertainty shocks as well as spillover shocks from their supplier and customer industries. On the other hand, uncertainty shocks from more central industries have higher impact on their partner industries than those from less central industries. Practical implications A manager needs to take into account the network positions of suppliers/customers in supply network when making inventory decisions. For example, when sharing information with partners, the network position of a partner affects how important its information is. Originality/value The key novelty of this paper is the introduction of network structure that represents the supplier–customer relationships in the entire economy, and the modeling of uncertainty shocks transmitted through the supply chain network.