- Email: [email protected]
Inventory structure in the manufacturing industry — A cross-country comparison
Internationa!Journal of Production Economlcs, "4 ( 1991 ) 19-27
19
Elsevier
Inventory structure in the manufacturing industry A cross-country comparison* Attila Chikfin Department of Business Econom'cs, Universityof Economics, Budapest, Hungary
1. Introduction This study has been prepared in the framework of a project dealing with cross-country comparison of inventory investment and inventory holding. This paper starts with providing the general framework for the research: its focus, main objectives and the characteristics of the database. The main chapters of the study examine the changes of inventory structure in time and the branch structure behind the aggregate manufacturing industry data. Finally, at the end of the study we # r e some conc!usion~, 2. Objectives and methods Inventory situations of various countries can be compared from many different points of view. Our r~resent paper discusses only one single question from the colorful set of possibilities: the inventory structure by the stage of fabrication will be examined. Even within this topic we had to give some further specifications. The mo~.t importam ones are the following: ( 1 ) We restrict our attention to the manufa~,utin~ industry. (2) We will talk about three types of inventories: *The research is mainly financed by the Science Policy Committee of ttle Hungarian government (Project TS 1/4). Additional funds were obtained from the Harvard University, Cambridge, MA. USA and the International Institute for Applied Systems Analysis (IIASA), Laxenburg, Austria. The author would like to express his thanks for the support. Extended versions of this paper appear as a worki:;g paper (Chik.4n, 1990) and as part of a Research Report for IIASA (Be~acs-(shikan, 1990).
inpuL work-in-proce:;s and output inventories. (3) We will deal with a sample of 16 countries.
2.1 Objectives of the research There were several factors which led to the choice of o,a: research topic. The most general objective was to contribute to the general theory of inventories in a field which is still mostly unexplored from the viewpoint of cross-country compariso~, it has already been realized some time ago that the inventory strac~ure of any country's manufacturing industry is very stable we wanted to see what are the reasons behind that stability. Some further, more concrete and direct objectives were also considered. It has been long ago established (Chik~n [ 1 ] ) that behind the very high level o? inventory investment in the planned economies there is an inventory structure much different from that of the market economies. Economic reasons for this difference have also been given. So we want now to see: how inventory behavior in the Eastern European countries might change with the current changes in the v*wironment. A thi, d oojectiv¢ was to create a basis for connetting the current trends in manufacttlring strate& to the aggregate industry, behavior. Several studies deal with the changes ~:~manufacturing strate~7 (Whybark and Rho [ 2 ], Chikfin and Why3~.~rk [3], De Meyer [4], Kim, KJm and Miller [5]., Sprague, Ritzman and Krajewski [ 6 ] ) but there are only a few words about the role of these microeconomic events in industrylevel behavior (Dubois and Lenerius [7], Conway et al. t ~ ], Waters [ 9 ]~ Callen [ 10 ] ).
0925-5!73/91/$03.50 © 1991 ElsevierSciencePiablishersE.V. Allrightsreserved.
30.75 26.79 ~2.46
56.05 25.19 15.84
71.78 16.54 11,68
1971-1981
Czechoslovakia 1966-1986
1971-1987
1963-1987
~971-!~86
1969-1984 49.23
1 9 6 3 - , 1 9 8 233.~!
196~_~9~
1963-1984 34.36 35.87 29.77
1971-1981 47.24 22.42 30,15
1971-1984
1 9 7 5 ~ 1 9 8 352.13
FRG
Hungary
UK
Bulgaria
Australia
Canada
Japan
Norway
Portugal
Sweden
Finland
29.~0 (78) 58,20 (66) 29.50 (78) 53.80 (86) 70.10 (73) 29.51 (86) 68.09 (7i) 44.48 (83) 33.10 (g2) 3022 (72) 29.33 (80) 45.39 (75) 27.12 (78) 48.57 (77)
(8~) 29.60 (68) 19.40 (67) 22.46 (81) 23.50 (75,76) 15.00 (87) 34.68 (74) 10.48 (74) 16.i5 (77) 19.63 (82) 34,54 (63) 29.27 (63) 18.47 (74) 29.46 (83) 16.42 (80)
(61)
I
W
29.70 (79) 18.20 (80) 40.92 (71) 10.00 (66) 10.50 (78) 23.32 (73) 13.06 (86) 28.32 (64) 34.23 (65) 2601 (73) 25.37 (83) 27.39 (77) 81,61 (74) 32.11 (77)
(79) 39.80 (72) 60.40 (71) 32.35 (81) 60.90 (66) 73.80 (87) 40.52 (74) 75.98 (86) 52.94 (64) 42.72 (65) 37,48 (63) 39.62 (64) 52.19 (73) 34.06 (74) 55.77 (82)
f47)
(72) 44.98 (33) 26.67 (79) 36.18 (73) 20.52 (76)
40.9g
42.30 (79) 22.40 (80) 28.60 (71) 27.90 (66) 17.90 (72,73,76) 39,51 (69) 12.27 (71) 19.68 (82) 23.98 (69)
($8)
1 2 . 0 0 62.20 25.00 (;0) (7~) (gl) 30.37 37.30 36.65
O
Maximum I
W
O
Average of 1981-~ 5
35.76 (78) 43.95 (74) ,al.00 (785 32.50 (81) 34.39 (;2) 39.14 (82) 25.61 (83)
(76)
23.20 (67) 45.20 (81) 19.oo (86) 12.90 (82) 31,19 (85) 19.94
(77) 18.58 3.16'
14.67 5.07
54.08 17.61 28.31 1.92s
30.68 31.33 38.00 0.813
47.22 23.93 28.51 1.66z
30.97 40.84 28.19 1.013
~2 ~f,' 37.62 2Q~~ I 0q"
37.81 20.97 40.30 0.924
46.57 18.97 34.27 1.36~
74.28 1tO4
1.02
15.64 11.90 6.103
31.09 38.45 ~946
72A6
56.70 24.67 18.66 3.07
30.48 26.24 43.28 0.762
59.6. 21.78
3.97 (8!) 0.99 (85) 1.17 (84) 3.15 (78,79) 0.68 (78) 2.75 (84) 5.58 (82) 1.09 (81) 4,80 (83) 1.28 (83) 0.85 (82) !.0~ (83) 1.05 (81) 1.57 (81) 0.79 (81) 1.77 (80)
Average Min. oi" 1981-85
Ratie of I / 0
19,70 63.00 22.90 14.10 4.49 (60) 34.56 33.04 34.58 32.38 1.02 t62) 34.30 31.24 39.34 29A2 1.06
O
I: input inventory; W: Workdn .process inventory; O: Output inventory. tAverage of 1976-80. 2Ave-age ¢,f i 9"77-8I. 3Averageof 1980-84. 4Averageof 1978-82. SAverageof ,~979-83.
8.34 2q.53
30.56 33.02 36.41
aa 0~ 37,74 29.~3
2!.98 39.30
18.15 32.56
72,23 11.37 16.40
34.02 37.93 28.05
19.78
1964-1980
SovietUnion
59.48 20.84
19u7-1986 34.33 35.68 29.90
14.70 57.80 20.80 too) (84,85) 1961-1988 34.02 33.64 32.34 3 1 . 7 8 2935
An_xia
USA
1960-|997 62.70 22.60
Poland
W
I
O
1
W
Minimum
Average
Period
CountJT
Inventory structure in the manufacturing iadustry
TABLE 1
5.10 (84) 1.07 (81) 0.96 (62) 3.26 (80) ~ "~ (73) 3.47 (81) 6.55 (85) 0.95 (85) 5.43 (85) 1.42 (81) 1.00 (81) i,;5 (79) 1,17 (83) 1,74 (77) 0.89 (84) 2.18 (82)
Max.
20 Relying solely on statistics one can easily get false consequences. To avoid that, four markzt and four planned economies were included in a systematic, detailed country study. The countries for which the studies were prepared are the following: United Kingdom, FRG, Austria, USA, Poland, Czechoslovakia, Bulgaffa, $cviet Union and Hungary. Those countries whi :h are in the sample only with their UNIDO da:abase are the following: Sweden, Norway, Japan, Canada, r re,and. Australia, ~r u~ . . .~u~a, . . . : ",,na' ~-:-1 Unfortunately some of the data could not be obtained purely for the manuNcturing industry. We will note, where the data are related to some unit other than the manufacturing industry (too tal industry, industry without fcod industry, etc. ). 3. Inventory structure and its change in time There is a general agreement in the inventory literature that the proportion of input and output inventories is a very important indicator of the intensity of market orientatio a of manufacturing industry. It is a general (but of course, only statistical) tendency that those companies which operate in a buyers market usually hold relatively much lower input and higher output inventories than their counte~pa~s in a sellers market. The competition leads companie-~ operating on a buyers market to make more efforts in service to the buyers and to provide a much shorter and reliable deliveD; lead time. Such a market requires flexibility and promptlness in sales, for which the holding of relatively high output inventories is necessary - while there is no need to hold high input inventories, since supply is reliable. In case of the sellers market, companies do not hold high output inventories because i't is easy to sell but on the other hand it is hard to buy and because of that they have to he~.d high input inventories to protect their production against uncertain supply. Another determining factor of the proportion of input, workdn-process a ad output inventories is of technical character and it stems from the specific characteristics of the different p, oductio.n processes. The consequence of the differences in the production process is that i,r~ve~tory intensity of the branches of industry is ~ery d i f
ferent and in connection with that, the proportion of the various types of inventories is different by branches. So the inventory structure of the manufacturing industry of any given economy is a function vf the branch proportion of production as well. Both factors mentioned (the character of the market and the branch structure) belong to the long term characteristics of any given economy. According to that the proportion of inventories is extremely stable. They show onl'y small changes even on relatively long run. 3.1 input and output inventories Table 1 shows the structure of inventories in the 16 countries in the sample. We have found that the most comparable period is the beginning of the eighties, 1981-85. Table l also shows the inventory structure for the: input and output inventories for these five years (when we did not have data for this period, we used the data of the closest five years). Beside the average of the five years we show the lowest and highest value, the range of the data. The ~,,gc ~ , , u ~ zimt for the countries examined the proportions are very stable. The relative range (to the mean) is between 0.03 (Soviet Union) and 0.25 (Poland)). The main message of the table is that - as it was expected - market situation has a very strong influence on inventory proportions. All market economies in the sample have a higher output/ input inventory ratio than any planned economies. On the other hand we could not find a really well established market related explanation for the order of countries within the two groups. However it seems that there is a tendency to have some connection between industrial development and inventory proportions. F~om this tendency Japan and Hungary deviate: bolh are fur~her behind on the list as one could expect on t~e basis of their industrial development. The stability of input/output inventory ratio has also been examined. It is demonstrated by the small relative range of ~he data (~.he rang~ di~ vided by the mean) in case of all countries: even the largest relative range (0,,25 in Poland) is small. We also cempared qle long term (the total perked for which data were ava~lab!e) and short term (last five years) average ratios: the propor-
22 tion between the long and short term averages is 0.986, which practically means that the input/ output inventory ratio in the manufacturing industry of the countries examined did not change in the httes~ five years in comparison to the long term average. A: for the order of the countries, it shows only non significant changes: 11 of the 16 countries are at the same place, 3 countries moved one place, while the UK stepped three places ahead and Japan two steps backwards. It is interesting to observe that the inventory structure in the last five years changed to the opposite direction in the ca,e of the market and planned economies compared with the long term trend: the average proportion between the long and short term data in market economies is 0.97 (which means that the proportion of output inventories has relativeiy grown within the total inventory) while in the planned economies this proportion is 1.02 which means that the proportion of input inventories is increasing. According to our explanation this is in connection with the changes in market requirements: in market economies the position of sellers became stronger in the market wLile ia pl~nned economies the proportion of input inventories (used as a defence against the uncertainty in the supply market) increased. All this means that the basic characteristic tendencies of the different markets became stronger.
4= Work-in-l~.roeess inventories Of course the stability of the ratio of i~put and output inventories :~ also influenced by the workin-process inventcrl.es, O:-~ can see from Table 1 that the stability of these ";nventories is also very. high. Similar to the other two types of inventories the average ratio of the long and short run data sets is 1.01 which means one percent change, which shows a very slight increase of the ratio of WIP inventories. The maximal increase of the ratio is 14% (in case of Norway) the biggest decrease is 5% (Sweden, Canada and Hunga~'). Table 2 shows the ratio of work-in-process inventories to input and ~mtput inventories. One can see that the ratio of ~orkqr,-proces~ to input inventories is fluctuating much more than the ratio of work-in-process to output inventories. Tke input/WlP ratios are close to the input/output
TABLE2 The ratio of work-in-process inventories to input and output inv~ntories6 Country
Input/work-inprocess inventory
Output/work-inprocess inventor],'
Poland USA Austria Soviet Union FRG Czechoslovakia Hungary UK Bulgaria Australia Canada Japan Norway Portugal Sweden Finland
2.75 0,.95 0.79 2.74 1.16 2.30 4.63 0,81 6.73 2.45 1.77 0.86 0.76 1.97 0.98 3.07
0.62 0,94 0,75 0,85 1,65 0.75 0.'?6 0.7g 1.33 1.8 i 1.92 0.79 0.70 1.19 1.21 0.62
6The data are derived from the data in Table 1.
inventory ratios which shows (what we can also see in the column of output/WlP inventory ratios) that the proportion of work-in-process follows mainly the proportion of output inventories (for sake of interest the maximal/minimal ratios are the following: input/output 9.34, input/W!P 8.36, output/WIP 3.10).
5. The internal inventory structure of the branches of the manufacturing industry In the introduction of the previous chapter we already said that according to our opinion besides market relations technological characteristics are the other main factors influencing inventory structure. We give some facts and figures about branch characteristics in this chapt~;. 5. I Production structure and inventory structure
In Fable 3 the proportion of inventor'; rat.;,os and production ratios-of the countries in our sample can be found, (Unfortunately here we have the .data only of those countries where country studies were prepared.) According to our view this data set can be used better for our analysis than the turnover rate of ~he various
23 TABLE3 Inventory ratio per production ratio 7 by branches Country
Food industry (31)
Textile indush~j (32)
Paper industry, (33)
Wood industry (34)
Chemical industry (35)
Building material inaustry (36)
Metallurgy (37)
Machine industry (38)
Other (39)
Poland USA At~stria FRG Czechoslovakia Hungary UK Bulgarias
0.74 0.96 0.50 1.00 0.68 1.00 0.62 1.27
0.94 0,89 1.06 1.52 0.85 1.22 0.94 0.44
0.94 0.65 1.00 1.74 0.73 0.71 -0.64
0.94 0.55 0.63 0.28 0.70 0.70 -0.61
0.88 0.94 0.63 0,52 0.39 0.61 0.88 1.22
1,0 0.67 0.79 0.67 1.l[ 0.75 -0.75
0.86 1,44 1.15 1.75 1.09 0.73 1.21 0.93
1.42 1.17 1.44 1.14 1.58 1.45 1.38 1.35
-1.25 --0.86 0,62 0.70 0.75
~Share of inventories ofa aartieular branch in the to!ai inventc~rieg of the manufacturin¢ industry divided by share of oroduction of a particular branch il~ total manufacturing production: Branch inventory/Total inventory : Branch production/Total production. SAverage of 1973 and 1981. All others: average of 1980-84. National Sl'atistics for USA and Austria, all others UN Statistics.
branches~ since in the latter the effects of accounting differences and the uncertainty of the available data are greater. On the basis of the data one can see that the machine industry in all countries belongs to the more inventory intensive branches. It is interesting that in market economies metallurgy also belongs to th~:~ category while this is not true for planned economies. A branch with smaller inventory ir~tensity is the chemical industry (except for Bulgaria, in all eountriez this ratio is smaller, sometimes much smaller than one), paper and pulp industry., food industry, building r0aterial industry and the "other" industry (except one country). The textile industry shows a very mixed picture, while wood industry cannot be judged~ Obviously all these statements can be used only for a very rough conclusion. It is especially important to consider that we have a sample of a small number of countries only, and the fact that (as data at the two digit ISIC level shows) we ~houM go deeper for more explanation and examine the situation of the various subbranches. However, we can say that in those countries where the proportion of machine industry is higher, inventory investment is relatively higher, and what is even more important for our present analysis, the internal inventory structure of the machine industry (and in market economies that of th~ metallurgy) influence more the inventory structure of the total manufacturing sector than the internal structure of the le~s inventory inten-
sive branches, like for example the chemical industD'. 5.2 The ratio of input and output inventories in the various branches The internal inventory structures of the varie~Js branches of the manufacturing industry were available only for seven countries. However, analysis s!aows that we can draw some conclusions also on the basis of this relatively small sample. Table 4 shows the basic data. If we calculate the input/output invento,-y ratios of the various branches, we can see that the ratio is ~reater than one in the food industry, the paper industry, the wood industry, the meta:iurgy, in machine industry in each countrie.~. (This means that input inventories are higher than output inventories.) In the chemical industry., building material industry and other industries the ratio in planned economies are more than one, while the ratio in market economies are less than one. This is the same in the textile indu~_~ry, ezcep', the case of Austria. The variance of the ratio is usually much bigger among the planned economies than in the market economies. It is very important to see that the ~mallest ratio which we have ever got |br any pla aned economy is still bigger than the biggest r~tio among ¢he market economies. If we compare the input/output inventory ra'~os of the various branches to the total ratio of
25 TABLE 5
Input/outputinventoryratiosby branchesin the proportionof inver_to~ratiosin total manufacturingindustry Country
Manufacturing industry Food indus!ry Textile industry Wood industry Paper industry Chemical industry Building material industry Metallurgy Machine industry Others
Poland
USA
Austria
SovietUr,ion
Hungary
UK
Bulgaria
4.49 0.31 1.29 1.1 (~ 0.3G 1.52 1.36 4.92 1.68 L22
1.02 1.07 0.68 1.11 1.39 0.67 0.63 1.14 1.31 0.67
2.06 1.69 1.16 1.34 2.86 0.92 0.90 0.98 1.27 --
3.~6 0.70 2.73 -1.91 1.00 0.59 9.68 1.52 --
6.63 0.48 0.82 2.29 10.1 1.01 1.30 1.55 1.52 1.39
1.02 1.01 0.85 --0.78 -1.98 1.02 0.94
5.07 0.41 1.73 i.82 1.89 1.68 0.76 2.42 3.03 2.58
The 0ata in the table were calculatedas follows:input/outputinventoryratios in each branch havebeen dividedby the same ratio in toe totalmanufacturingindustry. the manufacturing industry we will see bow large the deviation of the internal inventory structure of the various branches from that of the total manufacturing industry in a specific country is. The data can be found in Table 5. The main conclusions are the following: The order of branches within the same country shows some regularities especially in the market economies. The input/ output inventory ratio is generally lower in the building matei~al industry, chemical industry and textile industry, higher in the paper industry and in the machine industry. As for the planned economies the ratio is low in the food industry and high in toe paper and machine industry. The fluctuation of the ratios are much higher in the planned economies than in market economies: the lowest and highest ratio is 2.15 and 3~I 1 in market economies, while 4.65 and 20.8 in planned economies. The difference among the countries is bigger in case of the planned corotorates than in the market economies. The reason for this is that the general technical conditions seem to have a bigger influence in market economies while in planned economies the individual market and institutional conditions play a more important role. 5.3
r. z , : ~~.,z
: ~ - l- n - p r o c e s s
in case of the input and output inventory ratios. It seems that in this case (first of all because of the even bigger influence of the technical-technological conditions) there is not that much difference among the countries and the groups of countries. There are just a few substantial deviations like for example the very low ratio of workin-process in the Bulgarian food industry or in u~
o v v ,~,~ ~ , a p e r l u u u ~ , d ' y .
In all planned economies but especially in Hungary and Bulgaria the work-in-process inventofie- are substantially lower in almost all brar~ches than i~ market economies, q he average prop~,~ion of work-i~.-process in the market economies is 24.3 which is almost double that of the planned economies, where this ratio is 12.3. If we used weighted average (the weight is production) the difference for the seven countries is even bigger: 37.4 versus 17.8. -r~.:, ,,~ di~arence among the two types of economies is according to our opinion a very substantial new result. Further investigations are necessary, but based on our present knowledge we can state a rather well based hypothesis that this is the consequence (among other reasons obviously) of the substantial results which have been achieved in the developed countries in the
.i n y e n t o r l e's
The ratio of work-in-process inventories te the total inventories of the various branches quite understandablyshewz a more regular picture than
keeping lower both input and output inventories, and in consequence of t ~':. . . . .*h,.o ratio of work-inprocess inventory will be higher (even though their iilcrease has been succ ,ssfuu~ ,~,,,,c~d in the
47.6 ~7.6 59.7 56.3 68.2 37.3 61,0
17.9 8.6 7.0 18.1 10.3 26.5 3.0
34.5 43.8 33.3 25.6 21.5 36.2 29.0
75.9 33.2 45.5 68.5 74.4 36.0 76.5
13,0 18.2 7.6 9.8 ~4.6 18.9 10.5
W 11.1 48.6 46.9 21.7 11.0 45.1 9.0
O 684 0.68 0.97 3.16 6.76 0.80 8.50
I/O
Chemical industry (35)
1
I/O 61.9 3fJ.8 42.9 79.5 65.0 36.0 75.3
0
5.79 0,69 1.23 8.64 5.42 0.87 8.75
I/O 81.3 49.1 68.8 83.8 81.0 -81.5
I
I
W
O
Metallurgy (37 )
10.7 44.8 34.9 9.2 12.0 41.4 8.6
O
I/O
8.5
7.0
9.6
13.5 1.42 3.03 6.03 15.2
I/O
60.5 27.7 31.3 52.7 73.6 24.1 77.0
I
O 31.5 8.0 49.9 22.4 45.6 23A 36.3 11.0 19.1 7.3 52.9 23.0 18.0 5.0
W
W
O
72.0
7.56 1.24 1.35 4.79 10.1 1.05 15.40
I/O
W
O
7,5
I/U
9.6
6.68
4.93 1.i3 1.42
I/O
71.2 16.8 12.0 5.93 34.7 20.8 :'1,5 0.78 --80.1 11.2 8.7 9.2 39.9 18.5 41.6 0.95 85.0 2.5 6.5 13.10
I
Other (39)
10.0
72.9 12.3 14.8 41.7 21.5 36,3 45.3 22.7 32.0 nonidentifiable 20.2 18.6 1.2
I
Wood industry ( 34 )
Machine industry ( 38 )
5.9 34.6 22,7 13.9 5.3
G
12.8 16.3 8.5 2.3 13.7
w
Paper industry, (33)
"~9.5 7.5 13.0 6.12 68.7 28.2 3.1 22.10 3.~.3 14.9 51.8 0.64 34.2 36.4 29.4 1.16 40.7 12.5 42.8 0.95 31.3 38.6 30.1 1.04 o~.-,~ A 4.i 33.5 1.86 57.8 15.5 26.7 2.16 78.5 12.4 9.1 8.63 73.2 19.7 7.1 10.3 -43.6 34.8 21.6 2.02 71.0 8.0 18.5 3.8480.0 11.0 6.5 12.30
W
I/0
27.4 24.4 22.2 11.3 23.1 22.6 16.1
Building material ir~dustry (36)
1.38 1.09 1.79 2.20 3.17 1.032 2.10
w
I
O
I
w
Textile industry (32)
Food industry (31 )
9Average of 1981 and 86. ~o1984. JJ 1967-72. Other countries: 1981-85.
Poland USA Austria Soviet Union" ilungary I° UK Bulgaria9
Country
Poland USA Austria Soviet Union" Hungary t° UK Bulgaria9
Country
Inventory ratios in various branches
TABLE 4
bO 4~
26 seventie~ and eighties especially because of the well-known integrated manufacturing systems like MRP and just-in-time). So this actually means that the rev.~ts achieved in decreasing mput and output inventories are bigger than the results got in the field of work-in-process inventories. (This can be explained by accepting a techn~ca~ constraint on decreasing work-hi-process inventories. ) We think that the high.or ratio of work-in-process inventories can be exp_iained also by the more complex technological O: ~. cesses which are applied at the higher technical development the industrialized countries achieved. 6. Conclusions In the following we summarize our results achieved by the comparison of inventory structure in the manufacturing i n d u s t ~ of t6 :: ~,:~tries. We believe that these theses are wellfounded despite of the uncertainties which were mentioned regarding the data and the analysis in the introduction of the paper ( 1) The stability of proportions. The analysis suppo(ts our a priori knowledge about the s~ability of the structure of inventories. The inventory structure is a long te~m characterizing factor of the manufacturing india.try in all countries. We have shown from various aspects and in various ways that these proportions change very slowly. (2) Difference between market and planned economies. The most important differences which we could find were between the groups of market and planned economies. In the planned economies because of the regular shortages the ratio of input inventories are usually much higher while the ratio of output inventories is much lower than in the market eco~;gmies. This thesis has been proven several times already from different aspects, but now a new result has been added, namely, that the ratio of work-in-process inventories is also lower in plamied economies on the long run. At the moment we believe that this is because of the difficulties in establishing reliable contact be*.ween companies in the planned economies.
(3) Market conditions and the influencing role of branch structure. We have shown that the differences in. the structure of inventories in the
manufacturing industry can be well explained b) the differences between market relations and the branch structure of production. (4) Some ~r.ecialities of the Hungarian manufacturing industry. D,;r'ng the data analysis we have found that the Hungarian manufacturing industry often shows (solely or together with some other countries in some specific cases) a deviating behavior. This can be a result of the very strange mixture of the etements of market and planned economies in the Hungariar: economy. Results of our research indicate the substantial difficulties a courtry must face when it wants to transform its economy from a planned economy to a market oriented one. If it wants to change its market from a s e i"e i ~ l ~. . .l|li*tllK~L . . ' . . . .LO . . ~[ buyers market this transformation necessarily brings together the change of the inventory structure. But the change of the production strt, cture takes lot of time and causes a lot of losses (tbr example, in form of inver~tory related problems) until the transformatior~ can be actually carried out. &~now!edgment I would like to express my thanks to Professor J~nos Kornai for stimulating and supporting the research.
References 1 Cbik~in, A., 1981. Market disequilibrium and the volume of stocks. In: A. Chikfin (Ed.), The economies and Management of inventories. Elsevier, Amsterdam, and Akad~miai Kiad6, Budapest, pp. 73-85. 2 Whybark, D.C. and Rho, B., 1988. A worldwide survey of manmacturing practices. Discussion Paper No. 2. In= dian Center for Global Business, Business SchoGl, Bloomington. 3 Chik~in, A. and Whybark, D.C., 1990. Cross-national compa~son ofproduction-inventnry m_~nagementpractices. In: #. Chik~ln (Ed.), Inventories: Theories and Applications. Elsevier, Amsterdam, pp. 149-156. 4 De Meyer, A., 1990. An empirwal investigation of manufacturing strategies in the Eu"oFean industry, ln; C. Voss (Ed.), Manufacturing Strategy - Theory and Practice, Vol. 2 (Proc. 5lh Int. Conf. of the Operations Management Association) MCB University Press, pp. 555- 58 i. 5 Kim, K.Y., Kim, J.S. and Miller, J.G., 1990. Manufac*.uringstrategies of the US and Korean firms: A comparative analysis. In: $.M. Le¢ afi~, 3.i. K~,,~k (Eds,), P7~,7,.
27
6
7
8
9
10
Fan-PacificConf. Vll: A Business, Economicand Tech-nologica[,Fxchange.Dan Kook University P~'ess~Seoul. Sprague, ~.G., Ritzman, L.P. and Krajewski, L., !990. Production planning, inventory management and scheduling:Spanningthe boundar/es. Manage. Decision Econ., I 1: 297-315. Dubois, P. and Lenerius, B., 1983. Materia!s management efficiency: An international survey of inventory ratio development. CiM-Working Papers No. 3:04, Chalmers University of Technology,Department of Industrial Management, GSteborg, Sweden. Ctmway, R., Maxwell,W., MeClain,J.O. and Thomas, L.J., 1987. The role ofwork-~n-processinven~,ory.Johnson Graduate Schoolof Management and S~.hoolof Operations Research and Industrial Engineering, Cornell University WorkingPaper No. 87-06. Waters, C,D.J., 1988. How effic,.'ent is UK inventory managem,.nt? In: J. Cooper (Ed.), Logisticsand Distribution Planning Strategiesfor Management. Kogan Page Ltd., London. Call,n, T.S., 1989. S*.ockbaildingbertaviorin the United Kingdom, Bank of England Quart. Bull., May: 264-269.
(c)
(d) (e)
(f) (g)
(h)
Sources of dnta
(a)
/1~
~,,j
Industrial Statistics Yearbook 1985, Vol. 1; General Industrial Statistics, United Nations, New York, 1987. TT ~T~ uN~t~O Industrial S~atistics Database, IIASA file, Laxenburg, Austria.
(i)
(j) (k)
USA: Business Statistics: 1986, 25th edition~ A supplement to the survey of current business, U~; Department of Commerce, Bureau of Economic Analysis, December 1987. Austria: Industriestatistik, Osterreichische Statistische Z., 1969-86. United Kingdom: (a) National income and expenditure 1965-83, Central Statistical O ~ c e (b) United Kingdom national accounts, 1984-88, C~ntral Statistical Office. Hungary: Report on inventories, 1988, Hungarian National Bank. Bulgaria: Logistics in Bulgaria, IIASA working paper, 1989, and personal communication based on data from the Bulgarian Statistical Office. Czechoslovakia: Statisticka Rocenka CSSR, 1967-87 annually. FRG: Jahresabschliisse der Unternehmen in der Bundesrepubiik Deutsch!and~ 19651981 Sonderdrucke :;~'r Dev_tschen Bundesbai~k, 1983. Soviet Union: Narodnoye Hozyaystvo USSR, 1965-87 annually, Moscow. Po!a~d: ~ . . . . ;v ~,~.; . . . . . . . . . . . . . saw, 1965-87.
19
Elsevier
Inventory structure in the manufacturing industry A cross-country comparison* Attila Chikfin Department of Business Econom'cs, Universityof Economics, Budapest, Hungary
1. Introduction This study has been prepared in the framework of a project dealing with cross-country comparison of inventory investment and inventory holding. This paper starts with providing the general framework for the research: its focus, main objectives and the characteristics of the database. The main chapters of the study examine the changes of inventory structure in time and the branch structure behind the aggregate manufacturing industry data. Finally, at the end of the study we # r e some conc!usion~, 2. Objectives and methods Inventory situations of various countries can be compared from many different points of view. Our r~resent paper discusses only one single question from the colorful set of possibilities: the inventory structure by the stage of fabrication will be examined. Even within this topic we had to give some further specifications. The mo~.t importam ones are the following: ( 1 ) We restrict our attention to the manufa~,utin~ industry. (2) We will talk about three types of inventories: *The research is mainly financed by the Science Policy Committee of ttle Hungarian government (Project TS 1/4). Additional funds were obtained from the Harvard University, Cambridge, MA. USA and the International Institute for Applied Systems Analysis (IIASA), Laxenburg, Austria. The author would like to express his thanks for the support. Extended versions of this paper appear as a worki:;g paper (Chik.4n, 1990) and as part of a Research Report for IIASA (Be~acs-(shikan, 1990).
inpuL work-in-proce:;s and output inventories. (3) We will deal with a sample of 16 countries.
2.1 Objectives of the research There were several factors which led to the choice of o,a: research topic. The most general objective was to contribute to the general theory of inventories in a field which is still mostly unexplored from the viewpoint of cross-country compariso~, it has already been realized some time ago that the inventory strac~ure of any country's manufacturing industry is very stable we wanted to see what are the reasons behind that stability. Some further, more concrete and direct objectives were also considered. It has been long ago established (Chik~n [ 1 ] ) that behind the very high level o? inventory investment in the planned economies there is an inventory structure much different from that of the market economies. Economic reasons for this difference have also been given. So we want now to see: how inventory behavior in the Eastern European countries might change with the current changes in the v*wironment. A thi, d oojectiv¢ was to create a basis for connetting the current trends in manufacttlring strate& to the aggregate industry, behavior. Several studies deal with the changes ~:~manufacturing strate~7 (Whybark and Rho [ 2 ], Chikfin and Why3~.~rk [3], De Meyer [4], Kim, KJm and Miller [5]., Sprague, Ritzman and Krajewski [ 6 ] ) but there are only a few words about the role of these microeconomic events in industrylevel behavior (Dubois and Lenerius [7], Conway et al. t ~ ], Waters [ 9 ]~ Callen [ 10 ] ).
0925-5!73/91/$03.50 © 1991 ElsevierSciencePiablishersE.V. Allrightsreserved.
30.75 26.79 ~2.46
56.05 25.19 15.84
71.78 16.54 11,68
1971-1981
Czechoslovakia 1966-1986
1971-1987
1963-1987
~971-!~86
1969-1984 49.23
1 9 6 3 - , 1 9 8 233.~!
196~_~9~
1963-1984 34.36 35.87 29.77
1971-1981 47.24 22.42 30,15
1971-1984
1 9 7 5 ~ 1 9 8 352.13
FRG
Hungary
UK
Bulgaria
Australia
Canada
Japan
Norway
Portugal
Sweden
Finland
29.~0 (78) 58,20 (66) 29.50 (78) 53.80 (86) 70.10 (73) 29.51 (86) 68.09 (7i) 44.48 (83) 33.10 (g2) 3022 (72) 29.33 (80) 45.39 (75) 27.12 (78) 48.57 (77)
(8~) 29.60 (68) 19.40 (67) 22.46 (81) 23.50 (75,76) 15.00 (87) 34.68 (74) 10.48 (74) 16.i5 (77) 19.63 (82) 34,54 (63) 29.27 (63) 18.47 (74) 29.46 (83) 16.42 (80)
(61)
I
W
29.70 (79) 18.20 (80) 40.92 (71) 10.00 (66) 10.50 (78) 23.32 (73) 13.06 (86) 28.32 (64) 34.23 (65) 2601 (73) 25.37 (83) 27.39 (77) 81,61 (74) 32.11 (77)
(79) 39.80 (72) 60.40 (71) 32.35 (81) 60.90 (66) 73.80 (87) 40.52 (74) 75.98 (86) 52.94 (64) 42.72 (65) 37,48 (63) 39.62 (64) 52.19 (73) 34.06 (74) 55.77 (82)
f47)
(72) 44.98 (33) 26.67 (79) 36.18 (73) 20.52 (76)
40.9g
42.30 (79) 22.40 (80) 28.60 (71) 27.90 (66) 17.90 (72,73,76) 39,51 (69) 12.27 (71) 19.68 (82) 23.98 (69)
($8)
1 2 . 0 0 62.20 25.00 (;0) (7~) (gl) 30.37 37.30 36.65
O
Maximum I
W
O
Average of 1981-~ 5
35.76 (78) 43.95 (74) ,al.00 (785 32.50 (81) 34.39 (;2) 39.14 (82) 25.61 (83)
(76)
23.20 (67) 45.20 (81) 19.oo (86) 12.90 (82) 31,19 (85) 19.94
(77) 18.58 3.16'
14.67 5.07
54.08 17.61 28.31 1.92s
30.68 31.33 38.00 0.813
47.22 23.93 28.51 1.66z
30.97 40.84 28.19 1.013
~2 ~f,' 37.62 2Q~~ I 0q"
37.81 20.97 40.30 0.924
46.57 18.97 34.27 1.36~
74.28 1tO4
1.02
15.64 11.90 6.103
31.09 38.45 ~946
72A6
56.70 24.67 18.66 3.07
30.48 26.24 43.28 0.762
59.6. 21.78
3.97 (8!) 0.99 (85) 1.17 (84) 3.15 (78,79) 0.68 (78) 2.75 (84) 5.58 (82) 1.09 (81) 4,80 (83) 1.28 (83) 0.85 (82) !.0~ (83) 1.05 (81) 1.57 (81) 0.79 (81) 1.77 (80)
Average Min. oi" 1981-85
Ratie of I / 0
19,70 63.00 22.90 14.10 4.49 (60) 34.56 33.04 34.58 32.38 1.02 t62) 34.30 31.24 39.34 29A2 1.06
O
I: input inventory; W: Workdn .process inventory; O: Output inventory. tAverage of 1976-80. 2Ave-age ¢,f i 9"77-8I. 3Averageof 1980-84. 4Averageof 1978-82. SAverageof ,~979-83.
8.34 2q.53
30.56 33.02 36.41
aa 0~ 37,74 29.~3
2!.98 39.30
18.15 32.56
72,23 11.37 16.40
34.02 37.93 28.05
19.78
1964-1980
SovietUnion
59.48 20.84
19u7-1986 34.33 35.68 29.90
14.70 57.80 20.80 too) (84,85) 1961-1988 34.02 33.64 32.34 3 1 . 7 8 2935
An_xia
USA
1960-|997 62.70 22.60
Poland
W
I
O
1
W
Minimum
Average
Period
CountJT
Inventory structure in the manufacturing iadustry
TABLE 1
5.10 (84) 1.07 (81) 0.96 (62) 3.26 (80) ~ "~ (73) 3.47 (81) 6.55 (85) 0.95 (85) 5.43 (85) 1.42 (81) 1.00 (81) i,;5 (79) 1,17 (83) 1,74 (77) 0.89 (84) 2.18 (82)
Max.
20 Relying solely on statistics one can easily get false consequences. To avoid that, four markzt and four planned economies were included in a systematic, detailed country study. The countries for which the studies were prepared are the following: United Kingdom, FRG, Austria, USA, Poland, Czechoslovakia, Bulgaffa, $cviet Union and Hungary. Those countries whi :h are in the sample only with their UNIDO da:abase are the following: Sweden, Norway, Japan, Canada, r re,and. Australia, ~r u~ . . .~u~a, . . . : ",,na' ~-:-1 Unfortunately some of the data could not be obtained purely for the manuNcturing industry. We will note, where the data are related to some unit other than the manufacturing industry (too tal industry, industry without fcod industry, etc. ). 3. Inventory structure and its change in time There is a general agreement in the inventory literature that the proportion of input and output inventories is a very important indicator of the intensity of market orientatio a of manufacturing industry. It is a general (but of course, only statistical) tendency that those companies which operate in a buyers market usually hold relatively much lower input and higher output inventories than their counte~pa~s in a sellers market. The competition leads companie-~ operating on a buyers market to make more efforts in service to the buyers and to provide a much shorter and reliable deliveD; lead time. Such a market requires flexibility and promptlness in sales, for which the holding of relatively high output inventories is necessary - while there is no need to hold high input inventories, since supply is reliable. In case of the sellers market, companies do not hold high output inventories because i't is easy to sell but on the other hand it is hard to buy and because of that they have to he~.d high input inventories to protect their production against uncertain supply. Another determining factor of the proportion of input, workdn-process a ad output inventories is of technical character and it stems from the specific characteristics of the different p, oductio.n processes. The consequence of the differences in the production process is that i,r~ve~tory intensity of the branches of industry is ~ery d i f
ferent and in connection with that, the proportion of the various types of inventories is different by branches. So the inventory structure of the manufacturing industry of any given economy is a function vf the branch proportion of production as well. Both factors mentioned (the character of the market and the branch structure) belong to the long term characteristics of any given economy. According to that the proportion of inventories is extremely stable. They show onl'y small changes even on relatively long run. 3.1 input and output inventories Table 1 shows the structure of inventories in the 16 countries in the sample. We have found that the most comparable period is the beginning of the eighties, 1981-85. Table l also shows the inventory structure for the: input and output inventories for these five years (when we did not have data for this period, we used the data of the closest five years). Beside the average of the five years we show the lowest and highest value, the range of the data. The ~,,gc ~ , , u ~ zimt for the countries examined the proportions are very stable. The relative range (to the mean) is between 0.03 (Soviet Union) and 0.25 (Poland)). The main message of the table is that - as it was expected - market situation has a very strong influence on inventory proportions. All market economies in the sample have a higher output/ input inventory ratio than any planned economies. On the other hand we could not find a really well established market related explanation for the order of countries within the two groups. However it seems that there is a tendency to have some connection between industrial development and inventory proportions. F~om this tendency Japan and Hungary deviate: bolh are fur~her behind on the list as one could expect on t~e basis of their industrial development. The stability of input/output inventory ratio has also been examined. It is demonstrated by the small relative range of ~he data (~.he rang~ di~ vided by the mean) in case of all countries: even the largest relative range (0,,25 in Poland) is small. We also cempared qle long term (the total perked for which data were ava~lab!e) and short term (last five years) average ratios: the propor-
22 tion between the long and short term averages is 0.986, which practically means that the input/ output inventory ratio in the manufacturing industry of the countries examined did not change in the httes~ five years in comparison to the long term average. A: for the order of the countries, it shows only non significant changes: 11 of the 16 countries are at the same place, 3 countries moved one place, while the UK stepped three places ahead and Japan two steps backwards. It is interesting to observe that the inventory structure in the last five years changed to the opposite direction in the ca,e of the market and planned economies compared with the long term trend: the average proportion between the long and short term data in market economies is 0.97 (which means that the proportion of output inventories has relativeiy grown within the total inventory) while in the planned economies this proportion is 1.02 which means that the proportion of input inventories is increasing. According to our explanation this is in connection with the changes in market requirements: in market economies the position of sellers became stronger in the market wLile ia pl~nned economies the proportion of input inventories (used as a defence against the uncertainty in the supply market) increased. All this means that the basic characteristic tendencies of the different markets became stronger.
4= Work-in-l~.roeess inventories Of course the stability of the ratio of i~put and output inventories :~ also influenced by the workin-process inventcrl.es, O:-~ can see from Table 1 that the stability of these ";nventories is also very. high. Similar to the other two types of inventories the average ratio of the long and short run data sets is 1.01 which means one percent change, which shows a very slight increase of the ratio of WIP inventories. The maximal increase of the ratio is 14% (in case of Norway) the biggest decrease is 5% (Sweden, Canada and Hunga~'). Table 2 shows the ratio of work-in-process inventories to input and ~mtput inventories. One can see that the ratio of ~orkqr,-proces~ to input inventories is fluctuating much more than the ratio of work-in-process to output inventories. Tke input/WlP ratios are close to the input/output
TABLE2 The ratio of work-in-process inventories to input and output inv~ntories6 Country
Input/work-inprocess inventory
Output/work-inprocess inventor],'
Poland USA Austria Soviet Union FRG Czechoslovakia Hungary UK Bulgaria Australia Canada Japan Norway Portugal Sweden Finland
2.75 0,.95 0.79 2.74 1.16 2.30 4.63 0,81 6.73 2.45 1.77 0.86 0.76 1.97 0.98 3.07
0.62 0,94 0,75 0,85 1,65 0.75 0.'?6 0.7g 1.33 1.8 i 1.92 0.79 0.70 1.19 1.21 0.62
6The data are derived from the data in Table 1.
inventory ratios which shows (what we can also see in the column of output/WlP inventory ratios) that the proportion of work-in-process follows mainly the proportion of output inventories (for sake of interest the maximal/minimal ratios are the following: input/output 9.34, input/W!P 8.36, output/WIP 3.10).
5. The internal inventory structure of the branches of the manufacturing industry In the introduction of the previous chapter we already said that according to our opinion besides market relations technological characteristics are the other main factors influencing inventory structure. We give some facts and figures about branch characteristics in this chapt~;. 5. I Production structure and inventory structure
In Fable 3 the proportion of inventor'; rat.;,os and production ratios-of the countries in our sample can be found, (Unfortunately here we have the .data only of those countries where country studies were prepared.) According to our view this data set can be used better for our analysis than the turnover rate of ~he various
23 TABLE3 Inventory ratio per production ratio 7 by branches Country
Food industry (31)
Textile indush~j (32)
Paper industry, (33)
Wood industry (34)
Chemical industry (35)
Building material inaustry (36)
Metallurgy (37)
Machine industry (38)
Other (39)
Poland USA At~stria FRG Czechoslovakia Hungary UK Bulgarias
0.74 0.96 0.50 1.00 0.68 1.00 0.62 1.27
0.94 0,89 1.06 1.52 0.85 1.22 0.94 0.44
0.94 0.65 1.00 1.74 0.73 0.71 -0.64
0.94 0.55 0.63 0.28 0.70 0.70 -0.61
0.88 0.94 0.63 0,52 0.39 0.61 0.88 1.22
1,0 0.67 0.79 0.67 1.l[ 0.75 -0.75
0.86 1,44 1.15 1.75 1.09 0.73 1.21 0.93
1.42 1.17 1.44 1.14 1.58 1.45 1.38 1.35
-1.25 --0.86 0,62 0.70 0.75
~Share of inventories ofa aartieular branch in the to!ai inventc~rieg of the manufacturin¢ industry divided by share of oroduction of a particular branch il~ total manufacturing production: Branch inventory/Total inventory : Branch production/Total production. SAverage of 1973 and 1981. All others: average of 1980-84. National Sl'atistics for USA and Austria, all others UN Statistics.
branches~ since in the latter the effects of accounting differences and the uncertainty of the available data are greater. On the basis of the data one can see that the machine industry in all countries belongs to the more inventory intensive branches. It is interesting that in market economies metallurgy also belongs to th~:~ category while this is not true for planned economies. A branch with smaller inventory ir~tensity is the chemical industry (except for Bulgaria, in all eountriez this ratio is smaller, sometimes much smaller than one), paper and pulp industry., food industry, building r0aterial industry and the "other" industry (except one country). The textile industry shows a very mixed picture, while wood industry cannot be judged~ Obviously all these statements can be used only for a very rough conclusion. It is especially important to consider that we have a sample of a small number of countries only, and the fact that (as data at the two digit ISIC level shows) we ~houM go deeper for more explanation and examine the situation of the various subbranches. However, we can say that in those countries where the proportion of machine industry is higher, inventory investment is relatively higher, and what is even more important for our present analysis, the internal inventory structure of the machine industry (and in market economies that of th~ metallurgy) influence more the inventory structure of the total manufacturing sector than the internal structure of the le~s inventory inten-
sive branches, like for example the chemical industD'. 5.2 The ratio of input and output inventories in the various branches The internal inventory structures of the varie~Js branches of the manufacturing industry were available only for seven countries. However, analysis s!aows that we can draw some conclusions also on the basis of this relatively small sample. Table 4 shows the basic data. If we calculate the input/output invento,-y ratios of the various branches, we can see that the ratio is ~reater than one in the food industry, the paper industry, the wood industry, the meta:iurgy, in machine industry in each countrie.~. (This means that input inventories are higher than output inventories.) In the chemical industry., building material industry and other industries the ratio in planned economies are more than one, while the ratio in market economies are less than one. This is the same in the textile indu~_~ry, ezcep', the case of Austria. The variance of the ratio is usually much bigger among the planned economies than in the market economies. It is very important to see that the ~mallest ratio which we have ever got |br any pla aned economy is still bigger than the biggest r~tio among ¢he market economies. If we compare the input/output inventory ra'~os of the various branches to the total ratio of
25 TABLE 5
Input/outputinventoryratiosby branchesin the proportionof inver_to~ratiosin total manufacturingindustry Country
Manufacturing industry Food indus!ry Textile industry Wood industry Paper industry Chemical industry Building material industry Metallurgy Machine industry Others
Poland
USA
Austria
SovietUr,ion
Hungary
UK
Bulgaria
4.49 0.31 1.29 1.1 (~ 0.3G 1.52 1.36 4.92 1.68 L22
1.02 1.07 0.68 1.11 1.39 0.67 0.63 1.14 1.31 0.67
2.06 1.69 1.16 1.34 2.86 0.92 0.90 0.98 1.27 --
3.~6 0.70 2.73 -1.91 1.00 0.59 9.68 1.52 --
6.63 0.48 0.82 2.29 10.1 1.01 1.30 1.55 1.52 1.39
1.02 1.01 0.85 --0.78 -1.98 1.02 0.94
5.07 0.41 1.73 i.82 1.89 1.68 0.76 2.42 3.03 2.58
The 0ata in the table were calculatedas follows:input/outputinventoryratios in each branch havebeen dividedby the same ratio in toe totalmanufacturingindustry. the manufacturing industry we will see bow large the deviation of the internal inventory structure of the various branches from that of the total manufacturing industry in a specific country is. The data can be found in Table 5. The main conclusions are the following: The order of branches within the same country shows some regularities especially in the market economies. The input/ output inventory ratio is generally lower in the building matei~al industry, chemical industry and textile industry, higher in the paper industry and in the machine industry. As for the planned economies the ratio is low in the food industry and high in toe paper and machine industry. The fluctuation of the ratios are much higher in the planned economies than in market economies: the lowest and highest ratio is 2.15 and 3~I 1 in market economies, while 4.65 and 20.8 in planned economies. The difference among the countries is bigger in case of the planned corotorates than in the market economies. The reason for this is that the general technical conditions seem to have a bigger influence in market economies while in planned economies the individual market and institutional conditions play a more important role. 5.3
r. z , : ~~.,z
: ~ - l- n - p r o c e s s
in case of the input and output inventory ratios. It seems that in this case (first of all because of the even bigger influence of the technical-technological conditions) there is not that much difference among the countries and the groups of countries. There are just a few substantial deviations like for example the very low ratio of workin-process in the Bulgarian food industry or in u~
o v v ,~,~ ~ , a p e r l u u u ~ , d ' y .
In all planned economies but especially in Hungary and Bulgaria the work-in-process inventofie- are substantially lower in almost all brar~ches than i~ market economies, q he average prop~,~ion of work-i~.-process in the market economies is 24.3 which is almost double that of the planned economies, where this ratio is 12.3. If we used weighted average (the weight is production) the difference for the seven countries is even bigger: 37.4 versus 17.8. -r~.:, ,,~ di~arence among the two types of economies is according to our opinion a very substantial new result. Further investigations are necessary, but based on our present knowledge we can state a rather well based hypothesis that this is the consequence (among other reasons obviously) of the substantial results which have been achieved in the developed countries in the
.i n y e n t o r l e's
The ratio of work-in-process inventories te the total inventories of the various branches quite understandablyshewz a more regular picture than
keeping lower both input and output inventories, and in consequence of t ~':. . . . .*h,.o ratio of work-inprocess inventory will be higher (even though their iilcrease has been succ ,ssfuu~ ,~,,,,c~d in the
47.6 ~7.6 59.7 56.3 68.2 37.3 61,0
17.9 8.6 7.0 18.1 10.3 26.5 3.0
34.5 43.8 33.3 25.6 21.5 36.2 29.0
75.9 33.2 45.5 68.5 74.4 36.0 76.5
13,0 18.2 7.6 9.8 ~4.6 18.9 10.5
W 11.1 48.6 46.9 21.7 11.0 45.1 9.0
O 684 0.68 0.97 3.16 6.76 0.80 8.50
I/O
Chemical industry (35)
1
I/O 61.9 3fJ.8 42.9 79.5 65.0 36.0 75.3
0
5.79 0,69 1.23 8.64 5.42 0.87 8.75
I/O 81.3 49.1 68.8 83.8 81.0 -81.5
I
I
W
O
Metallurgy (37 )
10.7 44.8 34.9 9.2 12.0 41.4 8.6
O
I/O
8.5
7.0
9.6
13.5 1.42 3.03 6.03 15.2
I/O
60.5 27.7 31.3 52.7 73.6 24.1 77.0
I
O 31.5 8.0 49.9 22.4 45.6 23A 36.3 11.0 19.1 7.3 52.9 23.0 18.0 5.0
W
W
O
72.0
7.56 1.24 1.35 4.79 10.1 1.05 15.40
I/O
W
O
7,5
I/U
9.6
6.68
4.93 1.i3 1.42
I/O
71.2 16.8 12.0 5.93 34.7 20.8 :'1,5 0.78 --80.1 11.2 8.7 9.2 39.9 18.5 41.6 0.95 85.0 2.5 6.5 13.10
I
Other (39)
10.0
72.9 12.3 14.8 41.7 21.5 36,3 45.3 22.7 32.0 nonidentifiable 20.2 18.6 1.2
I
Wood industry ( 34 )
Machine industry ( 38 )
5.9 34.6 22,7 13.9 5.3
G
12.8 16.3 8.5 2.3 13.7
w
Paper industry, (33)
"~9.5 7.5 13.0 6.12 68.7 28.2 3.1 22.10 3.~.3 14.9 51.8 0.64 34.2 36.4 29.4 1.16 40.7 12.5 42.8 0.95 31.3 38.6 30.1 1.04 o~.-,~ A 4.i 33.5 1.86 57.8 15.5 26.7 2.16 78.5 12.4 9.1 8.63 73.2 19.7 7.1 10.3 -43.6 34.8 21.6 2.02 71.0 8.0 18.5 3.8480.0 11.0 6.5 12.30
W
I/0
27.4 24.4 22.2 11.3 23.1 22.6 16.1
Building material ir~dustry (36)
1.38 1.09 1.79 2.20 3.17 1.032 2.10
w
I
O
I
w
Textile industry (32)
Food industry (31 )
9Average of 1981 and 86. ~o1984. JJ 1967-72. Other countries: 1981-85.
Poland USA Austria Soviet Union" ilungary I° UK Bulgaria9
Country
Poland USA Austria Soviet Union" Hungary t° UK Bulgaria9
Country
Inventory ratios in various branches
TABLE 4
bO 4~
26 seventie~ and eighties especially because of the well-known integrated manufacturing systems like MRP and just-in-time). So this actually means that the rev.~ts achieved in decreasing mput and output inventories are bigger than the results got in the field of work-in-process inventories. (This can be explained by accepting a techn~ca~ constraint on decreasing work-hi-process inventories. ) We think that the high.or ratio of work-in-process inventories can be exp_iained also by the more complex technological O: ~. cesses which are applied at the higher technical development the industrialized countries achieved. 6. Conclusions In the following we summarize our results achieved by the comparison of inventory structure in the manufacturing i n d u s t ~ of t6 :: ~,:~tries. We believe that these theses are wellfounded despite of the uncertainties which were mentioned regarding the data and the analysis in the introduction of the paper ( 1) The stability of proportions. The analysis suppo(ts our a priori knowledge about the s~ability of the structure of inventories. The inventory structure is a long te~m characterizing factor of the manufacturing india.try in all countries. We have shown from various aspects and in various ways that these proportions change very slowly. (2) Difference between market and planned economies. The most important differences which we could find were between the groups of market and planned economies. In the planned economies because of the regular shortages the ratio of input inventories are usually much higher while the ratio of output inventories is much lower than in the market eco~;gmies. This thesis has been proven several times already from different aspects, but now a new result has been added, namely, that the ratio of work-in-process inventories is also lower in plamied economies on the long run. At the moment we believe that this is because of the difficulties in establishing reliable contact be*.ween companies in the planned economies.
(3) Market conditions and the influencing role of branch structure. We have shown that the differences in. the structure of inventories in the
manufacturing industry can be well explained b) the differences between market relations and the branch structure of production. (4) Some ~r.ecialities of the Hungarian manufacturing industry. D,;r'ng the data analysis we have found that the Hungarian manufacturing industry often shows (solely or together with some other countries in some specific cases) a deviating behavior. This can be a result of the very strange mixture of the etements of market and planned economies in the Hungariar: economy. Results of our research indicate the substantial difficulties a courtry must face when it wants to transform its economy from a planned economy to a market oriented one. If it wants to change its market from a s e i"e i ~ l ~. . .l|li*tllK~L . . ' . . . .LO . . ~[ buyers market this transformation necessarily brings together the change of the inventory structure. But the change of the production strt, cture takes lot of time and causes a lot of losses (tbr example, in form of inver~tory related problems) until the transformatior~ can be actually carried out. &~now!edgment I would like to express my thanks to Professor J~nos Kornai for stimulating and supporting the research.
References 1 Cbik~in, A., 1981. Market disequilibrium and the volume of stocks. In: A. Chikfin (Ed.), The economies and Management of inventories. Elsevier, Amsterdam, and Akad~miai Kiad6, Budapest, pp. 73-85. 2 Whybark, D.C. and Rho, B., 1988. A worldwide survey of manmacturing practices. Discussion Paper No. 2. In= dian Center for Global Business, Business SchoGl, Bloomington. 3 Chik~in, A. and Whybark, D.C., 1990. Cross-national compa~son ofproduction-inventnry m_~nagementpractices. In: #. Chik~ln (Ed.), Inventories: Theories and Applications. Elsevier, Amsterdam, pp. 149-156. 4 De Meyer, A., 1990. An empirwal investigation of manufacturing strategies in the Eu"oFean industry, ln; C. Voss (Ed.), Manufacturing Strategy - Theory and Practice, Vol. 2 (Proc. 5lh Int. Conf. of the Operations Management Association) MCB University Press, pp. 555- 58 i. 5 Kim, K.Y., Kim, J.S. and Miller, J.G., 1990. Manufac*.uringstrategies of the US and Korean firms: A comparative analysis. In: $.M. Le¢ afi~, 3.i. K~,,~k (Eds,), P7~,7,.
27
6
7
8
9
10
Fan-PacificConf. Vll: A Business, Economicand Tech-nologica[,Fxchange.Dan Kook University P~'ess~Seoul. Sprague, ~.G., Ritzman, L.P. and Krajewski, L., !990. Production planning, inventory management and scheduling:Spanningthe boundar/es. Manage. Decision Econ., I 1: 297-315. Dubois, P. and Lenerius, B., 1983. Materia!s management efficiency: An international survey of inventory ratio development. CiM-Working Papers No. 3:04, Chalmers University of Technology,Department of Industrial Management, GSteborg, Sweden. Ctmway, R., Maxwell,W., MeClain,J.O. and Thomas, L.J., 1987. The role ofwork-~n-processinven~,ory.Johnson Graduate Schoolof Management and S~.hoolof Operations Research and Industrial Engineering, Cornell University WorkingPaper No. 87-06. Waters, C,D.J., 1988. How effic,.'ent is UK inventory managem,.nt? In: J. Cooper (Ed.), Logisticsand Distribution Planning Strategiesfor Management. Kogan Page Ltd., London. Call,n, T.S., 1989. S*.ockbaildingbertaviorin the United Kingdom, Bank of England Quart. Bull., May: 264-269.
(c)
(d) (e)
(f) (g)
(h)
Sources of dnta
(a)
/1~
~,,j
Industrial Statistics Yearbook 1985, Vol. 1; General Industrial Statistics, United Nations, New York, 1987. TT ~T~ uN~t~O Industrial S~atistics Database, IIASA file, Laxenburg, Austria.
(i)
(j) (k)
USA: Business Statistics: 1986, 25th edition~ A supplement to the survey of current business, U~; Department of Commerce, Bureau of Economic Analysis, December 1987. Austria: Industriestatistik, Osterreichische Statistische Z., 1969-86. United Kingdom: (a) National income and expenditure 1965-83, Central Statistical O ~ c e (b) United Kingdom national accounts, 1984-88, C~ntral Statistical Office. Hungary: Report on inventories, 1988, Hungarian National Bank. Bulgaria: Logistics in Bulgaria, IIASA working paper, 1989, and personal communication based on data from the Bulgarian Statistical Office. Czechoslovakia: Statisticka Rocenka CSSR, 1967-87 annually. FRG: Jahresabschliisse der Unternehmen in der Bundesrepubiik Deutsch!and~ 19651981 Sonderdrucke :;~'r Dev_tschen Bundesbai~k, 1983. Soviet Union: Narodnoye Hozyaystvo USSR, 1965-87 annually, Moscow. Po!a~d: ~ . . . . ;v ~,~.; . . . . . . . . . . . . . saw, 1965-87.