Do delivery terms influence the amount of the goods-in-transit inventories in the multinational organization? : case study

Abstract

Businesses are increasingly interested in improving their operations with the purpose of boosting company performance, which can be impacted through enhanced working capital management. Inventory management is one area that can help release working capital to other investments. In particular, the inventories in the end of supply chain are a potential phase for improvements, because these mostly tie up capital. In international trade, the commonly accepted trade terms, Incoterms, determine where the main risks and responsibilities are exchanged between the trade parties, and the companies can recognize their sales as revenue at this point. Therefore, one opportunity for decreasing the tied-up capital is to select the delivery terms, Incoterms, differently in the supply chain. The Incoterms are defectively studied in the academic literature, and there are only a small number of papers deepening the knowledge surrounding the topic. The relationship between the delivery terms and working capital management seems to be unobserved in these previous studies and hence this thesis examines if the amount of the goods-in-transit inventories is dependent on the delivery terms used in inter- and intra-organizational contracts. This thesis is conducted as a single case study and a mixed methods approach was selected as the applied research strategy as it enables reaching a wider perspective in the topic. The quantitative data describes the potential correlation between the choices of the delivery terms and the inventories, while the qualitative data from the interviews brings a practical approach to this research. The study found that the relation between the goods-in-transit inventories and the delivery terms was not significant, but rather the flow of information and the internal process reasons seemed to determine the inventory time in the case company.