Supplier-Based Concentration and Inventory Efficiency

Abstract

This study empirically examines the relation between supplier-base concentration and inventory efficiency in the Chinese manufacturing sector. Using hand-collected data from annual reports during 2007–2015, the authors find that manufacturers with a more concentrated supplier base hold fewer inventories, and the efficiency primarily flows through the raw materials and work-in-process inventory accounts. The authors find that small firms benefit more from a concentrated supplier base in inventory efficiency than large firms do. The authors also find that the positive effect of supplier-base concentration on inventory efficiency is stronger as customer-base concentration increases. In an additional analysis, the authors find that firms with a high supplier-base concentration would have better current and future financial performance.