INVENTORY VELOCITY, GROSS MARGINS, AND THE LEAN OPERATIONS PARADOX: GLOBAL LIFE-CYCLE AND INSTITUTIONAL EVIDENCE

Abstract

This study examines the relationship between inventory turnover velocity and corporate gross profit margins by corporate life-cycle and by national institutional characteristics. It addresses the tension between lean inventory discipline and supply-chain resilience by employing a global firm-level panel and nonlinear fixed-effects specifications to study the effect of inventory efficiency on margins and when does too much leanness become costly? The results reveal that inventory turnover is concave with gross margins, the economically viable frontier is different during the various life cycle stages and that the potential for 'lean' operations of an aggressive nature is limited in weak logistical and institutional environments. The study contributes to operations, corporate finance and international business research because it bridges the gap between working capital and organizational maturity and institutional capacity. The findings suggest that inventory turnover targets need to be taken as context-specific, strategic levels rather than as efficiency benchmarks.