Impact of just‐in‐time inventory systems on OEM suppliers
| DOI | https://doi.org/10.1108/02635570610649871 |
| Published date | 01 February 2006 |
| Date | 01 February 2006 |
| Pages | 224-241 |
| Author | John F. Kros,Mauro Falasca,S. Scott Nadler |
| Subject Matter | Economics,Information & knowledge management,Management science & operations |
Impact of just-in-time inventory
systems on OEM suppliers
John F. Kros
College of Business, East Carolina University, Greenville, North Carolina, USA
Mauro Falasca
Department of Business Information Technology, Virginia Polytechnic Institute
and State University, Blacksburg, Virginia, USA, and
S. Scott Nadler
College of Business, East Carolina University, Greenville, North Carolina, USA
Abstract
Purpose – To analyze the impact of the adoption of just-in-time (JIT) production systems by different
equipment manufacturers (OEMs) on the inventory profiles of their suppliers.
Design/methodology/approach – The research is designed to examine five financial measures of
inventory management performance over the years 1994-2004. Three specific industry sectors where
OEMs have adopted and implemented JIT principles are studied. These sectors include the
automotive, electronics, and aircraft industries. A one factor analysis of variance is employed to the
five hypotheses and Tukey’s post-hoc test is used to interpret statistical pairwise differences between
level means.
Findings – Overall, the research finds that OEM suppliers in the automotive, electronics, and aircraft
sectors have shown mixed results in the impact JIT implementation has had on inventory performance
measures.
Research limitations/implications – The research focuses on three industrial sectors over
approximately a ten year time frame that may limit its generalizability.
Practical implications – The processes that influence the reduction in inventory levels may be in
fact more complex and strategic in nature than an OEM adopting a JIT inventory policy. In general,
strategic changes within the supplier organization would have to drive process improvements that
lead to inventory reductions.
Originality/value – The paper provides focused research in an area that has received little attention
in the current literature and is very topical to all academics and business professionals interested or
involved in the area of JIT systems.
Keywords Just in time, Inventorymanagement, Analysis of variance,Automotive industry,
Electronicsindustry, Aircraft industry
Paper type Research paper
Introduction
Beginning in the early 1980s, a number of US firms followed the pioneering efforts of
Shigeo Shingo and Taichi Ohno and adopted just-in-time (JIT) manufacturing in an
attempt to reshape their manufacturing environments (Bragg et al., 2005) and to
become more agile (Helo, 2004). JIT requires that a company have a few reliable
suppliers and is believed to enhance productivity and build a leaner manufacturing
system which minimizes inventories (Helo, 2004) which, in turn, reduces risk and helps
minimize the cost of manufacturing (Curry and Kenney, 1999; Rahman, 2004).
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0263-5577.htm
IMDS
106,2
224
Industrial Management & Data
Systems
Vol. 106 No. 2, 2006
pp. 224-241
qEmerald Group Publishing Limited
0263-5577
DOI 10.1108/02635570610649871
On the other hand, business-to-business e-commerce has been around for a few
decades. For nearly 20 years, many large companies have had electronic links with
their suppliers through closed computer networks called electronic data interchanges
(EDI), which made it easier to exchange information and access data (Caputo et al.,
2004; Hsieh and Lin, 2004). Recently, many companies began moving those supply
chain links to web sites called Extranets, propelled by cheaper and better tools for
running web sites leading to the adoption of e-business tools by many industries to
manage the supply chain collaboratively.
As a result, major corporations such as Dell have had the will and the resources to
develop an extremely successful supply chain model and, most important of all, the
influence to force suppliers to adopt it. Overall, such a system builds a leaner supply
chain through tighter information flows so that inventories are minimized.
It could be concluded, through anecdotal evidence such as the Dell example or just
conventional logic, that investments and improvements in supply chain management
should have paid big dividends in inventory efficiency and reduction in costs. The
concern with these anecdotal accounts is that it is unclear whether they reflect the
exception or the rule. Therefore, the authors propose an empirical study to examine
and document the changes in inventory levels and inventory performance levels
utilizing a sample comprised of 316 companies from the automotive, electronics and
aircraft industries.
The present work will analyze what have been the results throughout the supply
chain, in terms of inventory management, of those companies who do business with
equipment manufacturers (OEMs) that utilize JIT systems. The results of this study
should enable managers that have or are considering implementing or participating in
a JIT inventory management system to become more effective.
Literature review
One of the predominant indicators of JIT effectiveness, a made to order or pull-based
system (Yeh, 2000), is related to inventory reductions. In this sense, Lieberman and
Demeester (1999) found that raw materials tend to exhibit an immediate reduction. At
the same time, the reduction of WIP lowers the costs of inventory holding and related
activities. Finally, the level of finished goods inventory should be reduced as a result of
improvements in process reliability and reduced cycle times. Similarly, channel power
in many industries is increasingly shifting to retailers who are increasingly demanding
greater responsiveness and flexibility from their suppliers (Cachon, 2001) in order to
reduce inventory investments and increase inventory turnover (IT) rates (Kritchanchai,
2004). As a result the level of inventory in the entire supply chain is reduced and
IT increases, while inventory carrying costs and working capital costs decrease
(Helo, 2004).
Where companies employ traditional push systems (e.g. Compaq and
Hewlett-Packard) financial risk increases because inventory value inputs, work in
progress, and final goods inventories frequently lose value with each day they are held
due to decreasing product lifecycles and a positive cash-to-cash cycle (customers pay
for products when they take possession). Companies that utilize push-based systems
frequently attempt to minimize risk by postponing final product assembly until
products reach local distributors who are responsible for final product configurations
(Papadakis, 2003).
Impact of JIT
inventory
systems
225
To continue reading
Request your trial