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This article summarizes the literature on inventory management flexibility from a competence perspective, and it classifies the work according to inter-firm and intra-firm flexibilities. It also explores the relationships between inventory competence flexibility, service capabilities flexibility, and performance. The results show that intra-firm inventory management flexibility, which reflects internal competence, has a positive impact on service capabilities and performance, while inventory coordination flexibility, which captures inter-firm competence, has no significance on those elements. Empirical results suggest that collaborative inventory management flexibility is an important issue for Mainland China to address in the future, although intra-firm competences there have been improved.
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Recently much attention has focused on the supply chain, the series of value activities concerned with the planning and controlling of raw materials, components, and finished products from suppliers to the final customer (Giunipero et al. 2008). One of the key dimensions in supply chain management is flexibility, and it has been defined as the ability to change or react with little penalty in time, effort, cost, or performance (Upton 1994). However, flexibility in the supply chain triggers the requirement for flexibility within and among all partners in the chain (Duclos et al. 2003). The hierarchy of flexibility dimensions as proposed by Koste and Malhotra (1999) provides a tiered perspective of flexibility beginning at the top with strategic flexibility and moving down through functional, plant, and shop floor flexibility and finally to individual resource flexibility. Among these types of flexibility, inventory flexibility was regarded as the significant factor influencing supply chain flexibility.
Inventory flexibility, as a part of volume flexibility, is defined as the ability to effectively increase or decrease aggregate production in response to customer demand (Cleveland et al. 1989), which requires close coordination between a manufacturer and its suppliers, especially in the face of increasing demand. Inventory flexibility directly impacts on a supply chain's performance by avoiding out-of-stock situations for products that are suddenly in high demand or by maintaining high inventory levels (Angel Martinez Sanchez and Manuela Perez Perez 2005). Therefore, inventory flexibility should be examined from an integrative perspective. In addition, inventory management should be implemented and achieved through distinctions between internal competences and external capabilities. Company efforts that reflect internal competence are not observable to customers, while customers could see and value external capabilities (Qingyu Zhang et al. 2005). Therefore, the internal management competences and customer service capabilities that reflect inventory flexibility and inventory management level respectively should be explained and the relationships among them should be examined.
The above questions motivate this research, and the remainder of the article is divided into three parts. First, inventory flexibility competence, service capabilities, and performance are discussed and conceptualized. Specific hypotheses about potential intra- and inter- inventory flexibilities and service capabilities and performance are developed. Second, the hypotheses are empirically tested in the context of the service relationship between these constructs. Third, conclusions for researchers and managers as well as the limitations of this research are discussed.
LITERATURE REVIEW
In logistics management, inventory committed to support future sales drives a number of anticipatory supply chain activities. Without a proper inventory, assortment loss sales and customer dissatisfaction may occur (Bowersox et al. 2002). To achieve the effectiveness and efficiency of inventory management, internal competence and external capabilities are extremely important. From the perspective of strategic management, firms should not be viewed as a portfolio of assets but as a set of mechanisms by which new skills are selected and built (Teece et al. 1997). These internal strengths, which are not visible to customers, are called competence. In comparison, flexible capability, which is externally focused, can be regarded as a linkage between operations, marketing, and manufacturing strategy (Watts et al. 1993). Day (1994) argues that capability is a customer-desired and visible strength that depends on other strengths within the firm. For example, inventory service flexibility is a capability that customers or users value because they view and perceive the impact. On the other hand, inventory managerial flexibility is not visible to customers because it is buffered by the firm's purchasing, sourcing, and operations management process. Therefore, this sort of classification might favor managers in identifying which flexible service capabilities are critical to their customers and which flexible managerial competences support these capabilities. Inventory service capabilities, which are externally focused, can be viewed as linkages between firms' marketing and manufacturing strategies. Flexible managerial competence, which is internally focused, is an important precursor to inventory service capabilities.
Inventory Management Flexibility: Competence Perspective
Flexibility is a complex, multidimensional concept that is difficult to define. As for the extant literature, there are various types of flexibility. In their reviews, Sethi and Sethi (1990) identified more than fifty different terms covering various aspects of flexibility, which can be classified into three levels: components (or basic), systems, and aggregates. Koste et al. (1999) developed a similar model for supply chain flexibility and agility. Vickery et al. (1999) defined five supply chain flexibilities, which include product, volume, launch, access, and responsiveness flexibility. In these diversified types of flexibilities, inventory management flexibility is considered as a part of volume flexibility alongside adjustment capability and process flexibility (Taps 2005). Inventory management flexibility is the integrative ability to vary point of use or warehouse inventory levels to respond to changing needs, and this flexibility is most likely affected by machine and capacity flexibility (Taylor et al. 1995).
Previously, inventory management flexibility was regarded only as a sort of individual basic-shop level issue, which does not belong to the aggregate-chain level element, or it can be treated as occurring within the area of managerial competence. But from a supply chain perspective, inventory management could be viewed as happening within and outside the process of how resources and activities are leveraged, based on environmental demands. As Fredericks (2005) pointed out, a business-to-business model may infuse flexibility throughout its organizations by developing close inter- and intra-firm relationships so that effective and alternate strategies and structures emerge that address environmental dynamism. In business-to-business markets, intra-firm inventory management may be involved with cross-functional coordination, as well as engineering, finance, and internal interfaces. Inter-firm inventory management represents coordination and cooperation with outsiders, including suppliers or customers to achieve high inventory performance with low total costs. Therefore, inventory management flexibility is defined as a systematic competence to manage and take responsibility for two or more functions along the supply chain, whether within or outside the firm.
Intra-firm Inventory Managerial Flexibility
Intra-firm inventory management flexibility refers to an inventory managerial ability to align appropriate internal systems and procedures to achieve high levels of customer service; its resource utilization and coordination occur at the functional level. Intra-firm inventory managerial flexibility can be achieved only when three conditions--joint management, information sharing between cross-functional units, and a low level of internal conflict--are satisfied. On intra-firm inventory managerial flexibility, two important aspects were considered as effective ways to keep reasonable inventory: inventory control and reactive methods (Bowersox et al. 2002).
Inventory control is the managerial procedure for implementing an inventory policy. The inventory level is likely to go up as demand increases, especially point-of-use inventory, which should increase as a function of mix size and demand to support setup flexibility. With ramping inventory levels, strict adherence to inventory management techniques or policies is even more essential, so that inventory record integrity and traceability can be maintained to the appropriate level (Taylor et al. 1995). In order to keep inventory record integrity and traceability, companies should not only have clear and integrated bills of materials or dynamic products lists but also have cross-functional team responsible for inventory performance management, because the achievement of inventory management can be accomplished only by process/outcome control mechanisms, and by organizational safeguard mechanisms. A true inventory management process might require a functional area within a firm to suboptimize its performance to benefit the firm as a whole. This might result in conflict from the suboptimized function. For example, achieving the desired availability might require warehouse to increase its expenditure, resulting in unfavorable inventory carrying costs. Therefore, to achieve integrity and traceability of inventory, a company should have a very flexible team to coordinate with the production function, customer needs, and overall internal value chain activities, and all impacted areas should agree on the appropriate performance metrics and their definitions.
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