Customer-Country Diversification and Inventory Efficiency: Comparative Evidence from the Manufacturing Sector during the pre-Pandemic and the COVID-19 Pandemic Periods

This study empirically examines the impact of geographic customer diversification on inventory efficiency and proposes a customer-country diversification strategy as a central element of U.S. manufacturing firms’ effort to transform their global supply chains in the aftermath of the COVID-19 pandemic. Using industry-level data during the pre-pandemic period (2003-2018) and the COVID-19 pandemic, this study finds that a geographically diversified customer base significantly reduced inventory efficiency during the pre-pandemic period, but increased inventory efficiency during the COVID-19 pandemic. Our finding suggests that U.S. manufacturing firms may be able to reduce negative impacts on inventory in a global pandemic and achieve greater inventory efficiency if they can target global customer bases with demand characteristics less correlated with U.S. domestic demand.