Inventory Trends in Emerging Market Supply Chains: Evidence from the Indian Automotive Industry

Vol 27, No 1; by Haritha Saranga, Arnab Mukherji and Janat Shah; March 2015

Since a significant portion of world manufacturing is shifting towards emerging markets, there is a growing need to identify the drivers of production and operational efficiencies in these markets. In the current paper, we study the factors contributing to efficient inventory management in the Indian automotive Industry. We use a sample of 58 firms, consisting of automakers and auto component suppliers that we observe for a 14-year period following economic reforms in India. We first carry out a “tierization” exercise to identify various tiers within auto supply chains to identify automakers, tier-1 suppliers and tier-2 suppliers. We then use fixed effects regression models to document trends in inventory holding over time and how this varies across inventory types and across tiers in the supply chain. Our results show that inventory holdings have declined differentially across tiers and across different types of inventories. We find tier-1 suppliers to be the best performers, who managed to reduce all components of their inventories at significant levels. Our insights from expert interviews indicate that while the TQM and lean efforts contributed to the better performance of tier-1 suppliers, lack of diffusion of best practices caused the less than expected reductions in tier-2 suppliers. This is the first time an empirical study documents the trends in various components of inventory and across the supply chain, in the context of an emerging market like India. We believe our results are generalizable to other emerging markets and the best practices we identified in this study can be transferred to other manufacturing industries in India and elsewhere.