THE MEDIATING EFFECT OF FIRM SIZE ON RAW MATERIAL PROCUREMENT DURING EXCHANGE RATE CHANGES: A STUDY OF LEAN FIRMS LISTED ON THE FTSE 100

Lean manufacturing practices which started from Toyota Production
System have evolved in to a practice that promoted a rethinking of several
manufacturing and service operations. As a result, several firms in different
industries are implementing lean practices to achieve better operation and
financial result and at the same time keeping pace with the competition.
Inventory in terms of raw materials, work-in-progress and finish goods is
one of the area which lean philosophy emphasized that should be kept low
by procuring only when the need arise thereby avoiding stocking.
Researchers had stressed that exchange rate fluctuations should be
considered especially in overseas purchasing. However, few studies have
investigated whether raw materials procurement can be affected by
exchange rate changes. The objective of this research is to fill the gaps by
investigating the mediating effect of firm size on exchange rate changes on
raw materials procurement by lean firms in the United Kingdom. Led by the
literature, this study develops a hypothesis to explore the answers to the
research questions. Secondary data were collected from Bloomberg
database and regression analysis through fixed effect estimators was used
to analyse the data. Empirical results showed that exchange rate
fluctuation have no significant effect on raw materials procurement by lean
firms in the UK. However, when moderated by size, exchange rate
fluctuations tend to have a significant effect on raw materials procurement.
The study recommends that large lean manufacturing firms in the UK that
have the facilities to stock extra quantities of raw materials can stock raw
material inventory when they anticipate that there will be changes in
exchange rate.