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Information and Incentive Effects of Inventory in JIT Production

Author

Listed:
  • Michael Alles

    (Ackerson Hall, Rutgers Business School, 1800 University avenue, Newark, New Jersey 07102-1897)

  • Amin Amershi

    (Carlson School of Management, University of Minnesota, 321 19th Avenue South, Minneapolis, Minnesota 55455)

  • Srikant Datar

    (Harvard Business School, Morgan Hall 421, Soldiers Field, Boston, Massachusetts 02163)

  • Ratna Sarkar

    (Harvard Business School, Soldiers Field, Boston, Massachusetts 02163)

Abstract

This paper provides an economic rationale for modern manufacturing control practices such as the minimal inventories in Just in Time (JIT)systems, zero-defect policies, and continuous improvement. The popular and academic literature contains descriptive studies on the mechanics of these systems and their perceived benefits. We use a model of production to analyze both informational and incentive rationales for reduced inventories. A JIT-like environment of low inventory levels is optimal in our model because it helps workers to better observe and understand the production process and to think and act creatively to improve operational reliability and yields. Empirical evidence using data obtained from 116 plants worldwide supports our conclusions about the effect of reduced inventories on process reliability, product quality, and cost.

Suggested Citation

  • Michael Alles & Amin Amershi & Srikant Datar & Ratna Sarkar, 2000. "Information and Incentive Effects of Inventory in JIT Production," Management Science, INFORMS, vol. 46(12), pages 1528-1544, December.
    • Handle: RePEc:inm:ormnsc:v:46:y:2000:i:12:p:1528-1544
    DOI: 10.1287/mnsc.46.12.1528.12079
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    File URL: http://dx.doi.org/10.1287/mnsc.46.12.1528.12079
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    References listed on IDEAS

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    1. Kreps,David M. & Wallis,Kenneth F. (ed.), 1997. "Advances in Economics and Econometrics: Theory and Applications," Cambridge Books, Cambridge University Press, number 9780521589819, January.
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    Cited by:

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    2. Zequeira, Romulo I. & Valdes, Jose E. & Berenguer, Christophe, 2008. "Optimal buffer inventory and opportunistic preventive maintenance under random production capacity availability," International Journal of Production Economics, Elsevier, vol. 111(2), pages 686-696, February.
    3. Ziyang Li & Qianwei Ying & Wu Yan & Chenjun Fan, 2022. "Does just‐in‐time adoption have an impact on corporate innovation: evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(S1), pages 1599-1635, April.
    4. Venky Nagar & Madhav V. Rajan & Richard Saouma, 2009. "The Incentive Value of Inventory and Cross‐training in Modern Manufacturing," Journal of Accounting Research, Wiley Blackwell, vol. 47(4), pages 991-1025, September.
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    7. Krishnan, Murugappa (Murgie) & Srinivasan, Ashok, 2007. "How do shop-floor supervisors allocate their time?," International Journal of Production Economics, Elsevier, vol. 105(1), pages 97-115, January.

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