A Model of Supplier Responses to Just-In-Time Delivery Requirements

John R. Grout and David P. Christy
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John R. Grout: Cox School of Business, Southern Methodist University
David P. Christy: The Mary Jean and Frank P. Smeal College of Business Administration, The Pennsylvania State University

Group Decision and Negotiation, 1999, vol. 8, issue 2, No 4, 139-156

Abstract: Abstract When buyers provide incentives for suppliers to deliver just-in-time, suppliers can respond by choosing to hold additional inventory, reducing the variance of flow time to facilitate just-in-time production, or both. A model characterizing the supplier's optimal response to incentives for JIT delivery is presented. The model shows a situation where the optimal action of the supplier is to hold more inventory. When incentives for on-time delivery are increased, the supplier responds by decreasing the variance of flow time and by increasing the lead time allowance. However, the lead time allowance increases more quickly than the variance is reduced, resulting. in a net increase in the amount of inventory that must be held by the supplier. The result is that inventory is pushed upstream. This paper does not suggest that inventory is always pushed upstream in JIT purchasing. Rather, it provides a counter-example to those who presume that holding more inventory is always a non-optimal response to buyer's requests for JIT delivery.

Keywords: incentives; buyer-supplier relations; supply chain; just-in-time; inventory; purchasing; timeliness (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (4)

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DOI: 10.1023/A:1008634008759

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