Abstract
Inventories play an important role in stabilizing production as well as demand. Uncertainties in demand and availability of finances may also induce firms to hold different forms of inventories. The geographic spread of demand necessitated the spread of retail inventories and production. These sources give rise to managerial discretion. Defining optimal inventory holding to minimize managerial discretion has not been achieved as yet.
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Notes
- 1.
Note that the more recent strategic management literature holds the view that firms choose investment strategies to provide them hit-and-run market advantages and shift to other product lines whenever it is necessary. See McGrath (2013).
- 2.
Rao and Rastogi (1997a. 1997b) demonstrated empirically that minimum cost considerations are not important in managerial decision-making. They may accept a higher cost instead of foregoing sales. Similarly, they may be willing to accept a higher cost of holding inventory in preference to increasing sales. As a consequence, some of the following results may need modification in empirical practice.
- 3.
- 4.
- 5.
When there is a credit crunch, the firm may employ subcontractors and franchising that will take the burden off the credit crunch. There is no need to reduce inventory as such.
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Ramamohan Rao, T.V.S. (2023). Inventory Behavior. In: Managerial Discretion in Imperfect Markets. Springer, Singapore. https://doi.org/10.1007/978-981-99-1537-8_7
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