The Role of Innovation in Inventory Turnover Performance

Abstract

How a firm utilizes technological innovation to improve operations management is an important research question in today's knowledge economy but lacks empirical evidence in the literature. We use a dataset of all non-service U.S. public firms from 1976 to 2005 to examine how a firm's innovation performance is associated with its inventory turnover performance. In particular, we measure a firm's innovation performance by the ratio of its patents (either citations or counts) to its research and development (R&D) expenditure. Our fixed-effect panel regression results indicate a positive relation between innovation performance and inventory turnover ratio, and such a relation varies across industries. By differentiating process and product innovation according to patent usages, we find that process innovation has a consistent and long-lasting effect, whereas product innovation has an immediate but short-lasting effect. We also find supporting evidence for industry spillovers by showing that firms in a more innovative industry are likely to better manage their inventory performance. Our results confirm the benefit of using innovation in logistics and operations management and point to the strategic importance of integrating technology and operations management.