Do employee-friendly practices affect inventory leanness?

Abstract

We examine the impact of employee-friendly practices (i.e. employment quality, training and development, and employee turnover) on inventory leanness. We use the Empirical Leanness Indicator (ELI) as a proxy for inventory leanness. We employ OLS estimates to estimate our regressions while controlling for country, industry, and year-fixed effects and clustering standard errors at the firm level. We use alternative approaches to address endogeneity issues, such as the instrumental variable and the Heckman two-stage approaches. Our results suggest that employee-friendly practices improve inventory leanness. Our findings suggest that firms should invest in employee-friendly practices. This policy implication is of paramount importance for firms with more employees working in roles involving inventory (as opposed to automation or non-labour methods) and in environments with high dynamism and complexity. We also suggest that reputation mediates the relationship between employee-friendly practices and inventory leanness.