Analyzing the impact of inventory leanness on the energy efficiency in the Korean steel firms

This study empirically analyzes the impact of inventory leanness on the energy efficiency in the Korean steel firms. Specifically, the concept of the distance function is used to define the energy efficiency and the estimation is performed using the stochastic frontier analysis, which is a parametric method. The empirical leanness indicator (ELI) is employed as the variable approximating the inventory leanness and used as the variable indicating how effectively the lean practices are implemented in the firm (Eroglu and Hofer 2011). The main results of this study are summarized as follows. First, the energy efficiency of two integrated-steel-mill firms with the highest energy consumption was quite high. Second, the inventory leanness measured by ELI had a positive impact on the energy efficiency. Third, although the inventory leanness has a positive effect on the energy efficiency, the marginal effect of the inventory leanness on the energy efficiency varies from firm to firm. Based on the main findings, this study provides the managerial implication as follows. Managers in charge of energy management or inventory management in the steel firms (or industry) need to recognize that efficient inventory management helps improve energy efficiency. In other words, it is important for them to keep in mind that two operational activities, energy management and inventory management, are closely related.