5. Discussion, Contributions, Limitations and Future Research
In the introduction, we pointed out that lean is a seminal theory in OM/SCM. Two propositions related to lean which have been explored in the literature, are that lower levels of both inventory and capacity slack positively contribute to performance. While these propositions are largely believed to be true in a variety of industries, in Section 2 we highlighted that other researchers have proposed countervailing thinking for retail—for example, the idea that that instore inventory drives sales. Thus, the key contribution of our paper is to show that lean theory does hold well in the retail industry. From both a snapshot and quarterly difference perspective and regardless of whether we look at capacity slack or inventory slack, lean produces superior, lasting returns for retailers.
In retail, other researchers (Alan, et al., 2014) have shown that inventory predicts performance when it is adjusted for gross margin - i.e. these researchers have applied the classic newsvendor model to the aggregate (firm) level. We agree that retail managers should consider product gross margins when determining inventory policies. However, our results show that lower inventory generates higher firm performance regardless of gross margin (i.e. gross margin is a control variable in our models). From a lean theory testing standpoint, this is an important contribution. Testing for boundary conditions of theories is a key element of the knowledge building process, and our study shows that the retail domain appears to be well within the boundaries of lean - without qualifications. From a practitioner point of view, a conventional rule of thumb in lean thinking is that inventory slack is an “evil.” Thus, a contribution to practice is demonstrating that this broad principle is not limited to manufacturing, but instead serves the retail world very well.
