Information and Incentive Effects of Inventory in JIT Production

Michael Alles (), Amin Amershi (), Srikant Datar () and Ratna Sarkar ()
Additional contact information
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

Management Science, 2000, vol. 46, issue 12, 1528-1544

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.

Keywords: just-in-time; inventory; information; incentives; quality; cost; control; performance (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (7)

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