Origins of profitability through JIT processes in the supply chain
| Date | 01 August 2005 |
| Pages | 752-768 |
| Published date | 01 August 2005 |
| DOI | https://doi.org/10.1108/02635570510606987 |
| Author | Jamshed J. Mistry |
| Subject Matter | Economics,Information & knowledge management,Management science & operations |
Origins of profitability through
JIT processes in the supply chain
Jamshed J. Mistry
Department of Management, Worcester Polytechnic Institute,
Worcester, Massachusetts, USA
Abstract
Purpose – To develop a conceptual model that links specific antecedent improvements in supply
chain processes to improved financial performance indicators.
Design/methodology/approach – A case study was conducted to document one electronics
manufacturing company’s evolving integration of JIT-driven processes in the supply chain. Data were
collected by interviewing key members of the senior management team, site visits, and analysis and
review of company documents.
Findings – Point-of-use systems, assemble-to-order systems, elimination of physical inventory
counts, and the online supplier program are linked to improved processes such as physical plan layout
and use, material handling, quality control and manufacturing efficiency, that resulted in
improvements in financial performance.
Research limitations/implications – A single site case study limits the generalizability of the
findings. Additional research is necessary to replicate the findings in other firms/industries.
Practical implications – By disaggregating JIT-driven processes and by incorporating some
improvements in production processes in the supply chain, the model enables managers to utilize these
processes to improve financial outcomes.
Originality/value – A conceptual model that integrates and delineates links between three sets of
variables, i.e. JIT-driven processes in the supply chain, improvements in production processes, and
financial performance indicators.
Keywords Supply chain management, Lean production,Just in time
Paper type Case study
Introduction
Supply chain management has led to a fundamental shift in the logistics of material
management in manufacturing. In this approach, the supply chain is viewed as a single
entity rather than relegating fragmented responsibility for various segments in the
supply chain to functional areas such as purchasing, manufacturing, distribution and
sales (Houlihan, 1985). Although there has been confusion and disagreement among
general business practitioners and operations professionals concerning the terms
“logistics” and “supply chain management” Lummus et al. (2001), provide a hierarchy
for the relationship between logistics and supply chain management. Desp ite this
disagreement of the definition of the terms, by the 1990 s, both business practitioners
and operations professionals recognized the necessity of looking beyond the borders of
their own firm to their suppliers, suppliers’ suppliers, and customers in order to
improve their ability to respond with efficiency and flexibility to customer needs
(Duclos et al., 2003).
The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at
www.emeraldinsight.com/researchregister www.emeraldinsight.com/0263-5577.htm
The author would like to thank Krishnagopal Menon for helpful comments on earlier drafts of
this paper and also two anonymous reviewers for their helpful comments and suggestions.
IMDS
105,6
752
Industrial Management & Data
Systems
Vol. 105 No. 6, 2005
pp. 752-768
qEmerald Group Publishing Limited
0263-5577
DOI 10.1108/02635570510606987
Although JIT-driven production processes were being utilized by the Japanese in the
mid-1970 s (Ohno and Mito, 1988; Payne, 1993), it was only in the 1990 s that US
companies began implementing JIT-driven processes in the supply chain (and its later
derivations which led to lean manufacturing) in their bid to regain competitiveness in
the international marketplace. JIT-driven processes or lean manufacturing (LM) has
been increasingly adopted by manufacturing companies in the US and widely
researched (Im et al., 1994). However, most of this research has focused on documenting
the benefits in terms of improved efficiencies in the manufacturing process (Kumar and
Nonis, 1990). Relatively few studies have focused on determining the association
between JIT-driven processes in the supply chain and profitability (Balakrishnan et al.,
1996; Kinney and Wempe, 2002). Further, evidence of the profitability of JIT-driven
supply chain processes is mixed at best.
The research reported in this paper builds on Balakrishnan et al.’s (1996) and
Kinney and Wempe’s (2002) focus on the origins of JIT-driven process profitability
through an in-depth case study, which enables tracking the mediating processes
through which JIT-driven supply chain processes lead to improved production
planning, resultant cost savings, and thereby contribute to improved financial
performance. The case study approach is utilized because it enables the researcher t o
go beyond a focus on simple bivariate links, e.g. between JIT-driven processes as an
antecedent and bottom line indicators such as p rofitability as the ult imate
consequence. Banker et al. (1990) make a similar argument criticizing the use of
highly aggregated measures (e.g. ROI, ROA, etc.) as the only outcome measures in
investigations of firm level profitability. They contend that such measures sidestep the
real problem of identifying the mediating processes and activities in each segment of
the supply chain and production processes through which profitability is impacted.
Taking a similar stance, the focus in this paper is on delineating a more differentiated
model of the antecedents of JIT-driven process profitability than currently exists in the
research literature. In-depth analysis of one company’s evolving JIT-driven pro cesses
in different supply chain cycles enables delineation of the specific antecedent
improvements in the production processes (e.g. efficiency of production processes,
inventory management, and the resultant cost savings) that mediate JIT’s ultimate
impact on firm performance.
The rest of the paper is organized as follows. The rationale for the study, presented
in the next section, is based on the literature on supply chain management and
management accounting. This is followed by a description of the method used for the
case study. Next, the results of the case study are presented to document the links that
emerge between JIT-driven processes, specific improvements in the manufacturing
process, and differentiated components of the company’s ROA.
Background and significance
Approaches to streamlining supply chain cycles and processes are particularly
relevant in today’s increasingly competitive business environment because of the
potential for such approaches to improve productivity, reduce costs, and ultimately
impact financial outcomes. A primary goal in the efficient management of the supply
chain that reflects the intersection between financial and operations management is to
reduce or eliminate all non-value-added costs. Since JIT is a concept that encompasses
almost all management activities related to manufacturing and focuses on all aspects
Profitability
through JIT
753
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