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Managing global production: theory and evidence from just-in-time supply chains

Frank Pisch

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: Global value chains are highly fragmented across countries and dominated by a few large multinational firms. But the challenges of an increasingly difficult international business environment are raising the question of how these patterns will change. I study the role of international Just-in-Time (JIT) supply chains in how global production is organized and what the future may hold. Using survey and administrative data for a large panel of French manufacturers, I first document that JIT is widespread across all industries and accounts for roughly two thirds of aggregate employment and trade. Next, I establish two novel stylized facts about the structure of international JIT supply chains: (1) They are more concentrated in space and (2) more vertically integrated than their 'traditional' counterparts. I rationalize these patterns in a framework of sequential production where failure to coordinate adaptation decisions in an uncertain environment leads to inventory holding. In JIT supply chains, information about downstream demand conditions is relayed upstream, which facilitates coordination. The associated inventory saving effect is stronger when firms are close to each other, so that the supply chain reacts quickly to changes in demand. This also applies when they are part of the same company and incentives for adaptation are aligned. I validate this model by supporting empirical evidence for further predictions and discuss potential long term implications of Brexit and COVID-19 for the structure of international supply chains.

Keywords: Just-in-time; global value chains; multinational firms; vertical integration (search for similar items in EconPapers)
JEL-codes: D23 F10 F14 F23 L23 (search for similar items in EconPapers)
Date: 2020-04-29
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Related works:
Working Paper: Managing global production: theory and evidence from just-in-time supply chains (2020) Downloads
Working Paper: Managing Global Production: Theory and Evidence from Just-in-Time Supply Chains (2020) Downloads
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