Exploring patterns in firms' inventories and flexibility levels after a low-probability, high-impact disruption event: Empirical evidence from the Great East Japan Earthquake

Christian F Durach, Tomas Repasky, Frank Wiengarten

Research output: Contribution to journalArticlepeer-review

Abstract

This study examines inventory and flexibility patterns in manufacturing firms in the years following a low-probability, high-consequence (lp-hc) event, the Great East Japan Earthquake of 2011. We find patterns suggesting that most firms exposed to the event began to increase their raw material inventories
over the longer term and increased their volume flexibility for a shorter period. Furthermore, we found that firms increased their raw material inventories mainly when inventories were already at high levels, while the opposite is true for volume flexibility. Firms that were classified as risk averse before the
event show stronger swings after the event. Preliminary explorations suggests that the performance of firms that have engaged in these inventory shifts is significantly impeded. This study provides insight into a previously unexplored phenomenon, namely the longer-term responses of firms to exposure to
lp-hc events. It opens the possibilities of new research regarding causality, economic consequences, and mechanisms of the identified patterns. Increased efforts in this direction should enable our discipline to provide improved normative guidance both socially and operationally. Further, this research direction enables the development of improved insights regarding the business consequences of lp-hc disruptive events.
Original languageEnglish
JournalProduction and Operations Management
Publication statusAccepted/In press - 31 Oct 2022

Keywords

  • catastrophic event
  • disruption
  • flexibility
  • inventory
  • risk management
  • resilience

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