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Industrial Management & Data Systems

Impact of just-in-time inventory systems on OEM suppliers
John F. Kros Mauro Falasca S. Scott Nadler
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John F. Kros Mauro Falasca S. Scott Nadler, (2006),"Impact of just-in-time inventory systems on OEM
suppliers", Industrial Management & Data Systems, Vol. 106 Iss 2 pp. 224 - 241
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Bin Srinidhi, Giri Kumar Tayi, (2004),"Just in time or just in case? An explanatory model with informational
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. 106 No. Rahman. North Carolina. Scott Nadler College of Business. 2006 pp. The current issue and full text archive of this journal is available at www. Design/methodology/approach – The research is designed to examine five financial measures of inventory management performance over the years 1994-2004. 2004).htm IMDS 106. Virginia. Aircraft industry Paper type Research paper Introduction Beginning in the early 1980s. 2004). 2.1108/02635570610649871 minimize the cost of manufacturing (Curry and Kenney. 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. Blacksburg. in turn. 1999. Keywords Just in time. East Carolina University. the research finds that OEM suppliers in the automotive.com/0263-5577. a number of US firms followed the pioneering efforts of Shigeo Shingo and Taichi Ohno and adopted just-in-time (JIT) manufacturing in an Industrial Management & Data attempt to reshape their manufacturing environments (Bragg et al. USA Downloaded by RMIT University At 00:14 03 February 2016 (PT) 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. North Carolina. Greenville. and S. East Carolina University. JIT requires that a company have a few reliable Vol. and aircraft sectors have shown mixed results in the impact JIT implementation has had on inventory performance measures. 2004) which. Three specific industry sectors where OEMs have adopted and implemented JIT principles are studied. 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. Automotive industry. Virginia Polytechnic Institute and State University. Greenville. Analysis of variance. 224-241 suppliers and is believed to enhance productivity and build a leaner manufacturing q Emerald Group Publishing Limited 0263-5577 system which minimizes inventories (Helo. USA Mauro Falasca Department of Business Information Technology. 2005) and to Systems become more agile (Helo. USA. reduces risk and helps DOI 10. electronics. and aircraft industries.2 Impact of just-in-time inventory systems on OEM suppliers John F. In general.emeraldinsight. These sectors include the automotive.. Findings – Overall. Electronics industry. 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. Inventory management. Research limitations/implications – The research focuses on three industrial sectors over approximately a ten year time frame that may limit its generalizability. strategic changes within the supplier organization would have to drive process improvements that lead to inventory reductions. Kros 224 College of Business. electronics.

the reduction of WIP lowers the costs of inventory holding and related activities.g. It could be concluded. Hsieh and Lin. In this sense. 2004). The concern with these anecdotal accounts is that it is unclear whether they reflect the exception or the rule. The present work will analyze what have been the results throughout the supply chain. 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. As a result the level of inventory in the entire supply chain is reduced and IT increases. many companies began moving those supply chain links to web sites called Extranets. the influence to force suppliers to adopt it. Similarly. Lieberman and Demeester (1999) found that raw materials tend to exhibit an immediate reduction. in terms of inventory management. major corporations such as Dell have had the will and the resources to develop an extremely successful supply chain model and. channel power in many industries is increasingly shifting to retailers who are increasingly demanding greater responsiveness and flexibility from their suppliers (Cachon. Finally. many large companies have had electronic links with inventory their suppliers through closed computer networks called electronic data interchanges (EDI). On the other hand. 2004). Therefore. work in progress. the level of finished goods inventory should be reduced as a result of improvements in process reliability and reduced cycle times. systems 2004. propelled by cheaper and better tools for running web sites leading to the adoption of e-business tools by many industries to 225 manage the supply chain collaboratively. such a system builds a leaner supply chain through tighter information flows so that inventories are minimized. through anecdotal evidence such as the Dell example or just conventional logic. Overall. 2004). . while inventory carrying costs and working capital costs decrease (Helo. which made it easier to exchange information and access data (Caputo et al. Recently. 2001) in order to reduce inventory investments and increase inventory turnover (IT) rates (Kritchanchai. Compaq and Hewlett-Packard) financial risk increases because inventory value inputs. business-to-business e-commerce has been around for a few Impact of JIT decades. of those companies who do business with equipment manufacturers (OEMs) that utilize JIT systems. At the same time. As a result. 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.. 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). is related to inventory reductions. that investments and improvements in supply chain management Downloaded by RMIT University At 00:14 03 February 2016 (PT) should have paid big dividends in inventory efficiency and reduction in costs. a made to order or pull-based system (Yeh. electronics and aircraft industries. Where companies employ traditional push systems (e. 2000). Literature review One of the predominant indicators of JIT effectiveness. 2003). For nearly 20 years. most important of all. 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.

1996. 1997. There have been a number of studies (Biggart and Gargeya. 1993. AL. Im and Lee. and third 106. Channel members benefit by being able to offer a greater variety of products with fewer inventories but may be forced to accept lower margins as product input prices fall (Papadakis. 2005). Final product financial risk is minimized through the use of made-to-stock inventories and channel assembly. first tier suppliers which assemble made-to-stock components into made-to-order JIT components frequently establish assembly facilities within a few minutes drive in order to reduce the impact of component availability problems. IMDS In both pull. Handfield. 1993. Chin and Rafuse. Accordingly. 1989. 1991. This enables manufacturers to ship generic products to distributors who are then responsible for final configuration and assembly (Curry and Kenney. Stamm and Golhar. companies attempt to reduce intermediate risk through the use of EDI and by having suppliers locate near distribution centers throughout the world. 2002. Temponi and Pandya. Where traditional push-based systems are employed. 1995. or confined to a single firm (Pelagagge. 1991. tend to be located in more remote locations – in order to take advantage of lower cost inputs – rely on regular shipping schedules and faster (more costly) modes of transportation in order to meet demand schedules (Curry and Kenney. Balakrishnan et al. Sohal et al. Crawford et al. Inman and Mehra. 1988. which make or assemble made-to-stock components. White et al. Balakrishnan et al. 2003). 1995.. 1999) are fully integrated in supply chain Downloaded by RMIT University At 00:14 03 February 2016 (PT) (Lyons et al. 1994. but still may not be fully integrated in the supply chain. Using a two-digit standard industrial code (SIC). to a sample of 46 firms in a control group that had not implemented JIT systems.. Hobbs. or industry (Papadakis. Huson and Nanda. Golhar et al.. Yasin et al. 1993. Lieberman and Demeester. Most of the research (whether case based or survey based) done thus far on the benefits of the adoption of JIT production mechanisms has either been anecdotal (Chin and Rafuse.. 1993. (1996) compared a sample of 46 firms that publicly announced JIT adoption during a somewhat narrow time frame (1985-1989). White.. 1997. 2003). Sriparavastu and Gupta. 1993. Sriparavastu and Gupta.. 1996. Second and third tier suppliers.(i. 1997). second. Lawrence and Hottenstein. Mistry. Pelagagge. comparing JIT firms with non-JIT firms at one point in time (Inman and Mehra. which manufactures their M Class SUV in Vanceboro. Cook and Rogowski. A review of the extant literature shows that there is a significant amount of empirical research on the implementation of JIT as well as its benefits and drawbacks (Biggart and Gargeya. product proliferation. JIT) and push-based systems the location of first. 2002. Companies that utilize pull-based systems such as Mercedes.. 1990. 2004) shortened product lifecycles. Billesbach.e. 1997). 2004). 1995. 1997). 1995) that have used longitudinal data to evaluate the benefits of JIT on firm performance. Cook and Rogowski. Deshpande and Golhar. 1994. 2002. 1993. 1993. 1999. Howton et al. Payne.e. 2004). 1996.. and increased customer expectations (Vokurka and Davis. 1990..2 tier suppliers is becoming increasingly important due to the increasing cost of transportation (Helo. 1999.. 1999). 2004). Boyd et al. cross-sectional. typically require first tier (major component) suppliers to locate their 226 facility within a four hours drive of the manufacturing facility. The firms that had adopted JIT practices were from eight distinct industries: . i. Billesbach and Hayen. Pull-based systems are faulted in that they require demand to remain stable during supply lead-time (Lyons et al. 2000.

though. Unlike Balakrishnan et al. Huson and Nanda (1995) analyzed 55 firms in 15 different industries in terms of the average IT ratio for the four-year pre. and WIP turnover ratio pre. etc. rubber products.g. hence. under which a significant reorganization was often required within the supplier firms (Imrie and Morris. The JIT inventory adoption firms averaged $331 million in terms of assets and the sample averaged $378 million in terms of net sales. furniture and fixtures. motor vehicles and accessories. on average. one must take note that the firms studied appear to include only the most visible. it is less clear to what extent suppliers benefit from engaging in JIT transactions with buyers. however. electronics.and post-JIT adoption finished goods turnover ratio was not statistically 227 significant at the 0. Thus. A study by Imrie and Morris (1992) found that the French auto and aerospace industries exerted pressure on the first-tier suppliers in order to change organizational practices to fit the nature of supply. (1996). Unfortunately.05 level. raw material turnover ratio.01 level. Two studies by Boyd et al. It is less clear. asset turnover. the firms had adopted JIT production methods during the 1980-1990 period.and post-JIT adoption period. The findings of Balakrishnan et al. IT ratio. Huson and Nanda (1995) considered only total inventory. Their results showed a statistically significant difference in the average IT ratio at the 0. industrial Impact of JIT machinery. a major part of the authors’ motivation for this research. (1996) are significant. The author’s results showed an increase in the average sales to inventory ratio for 25 of the 28 firms Downloaded by RMIT University At 00:14 03 February 2016 (PT) at the 0. Billesbach and Hayen (1994) compared 28 firms that had adopted JIT systems in terms of the average sales to total inventory ratio for the 1977-1979 period and the average sales to total inventory ratio during the 1987-1989. and finished goods inventories. it has been well documented that the implementation of JIT purchasing systems can result. shorter lead times.). the difference in the pre. WIP.and post-JIT adoption. (2002) and Biggart and Gargeya (2002) analyze the effects that JIT systems have had on a standard set of financial ratios (e. On the other hand. Biggart and Gargeya (2002) do allude to the impact JIT adoption may have on suppliers but overall there appears to be a lack of focused research in this area. Both studies focused on the pre-JIT adoption and post-JIT adoption timeframes. Specifically. Although each of the studies provides clear results to support the benefits of JIT adoption. the buyer-supplier “partnership” consisted of the application management methods prescribed by the buyer firms. return on assets. in reduced inventory costs. and instrumentation. In the same sense. . As the authors indicated. Billesbach and Hayen (1994) took into consideration total inventories. The studies by Billesbach and Hayen (1994) and Huson and Nanda (1995) use a longer time horizon and include firms from a wider range of industries. The author’s results showed that there was a systems statistically significant difference in the overall IT ratio. both groups of researchers considered inventory in a combined form. disregarding the raw materials. and improved productivity for buying organizations. large corporations and have only considered inventory in a composite form. and concluded that JIT adoption had significant positive effects on the set of standard financial ratios. to what extent suppliers benefit from engaging in JIT transactions with buyers. primary metal. the authors’ results are based on only 46 firms and a somewhat narrow (four year) time period.01 level. fabricated metal. Subsequently. 1992).

Firms that participate in a JIT production chain will have an increased COGS to raw materials inventory ratio after OEM JIT implementation. OEMs. supplier inventories decrease) or could result in a negative impact (e. Research methodology Using a broad definition of JIT. or neutral inventory management performance over at least a ten-year period time frame.g.. including raw materials. but both sectors have adopted and implemented JIT principles over the last 15 years. The outcome of such “influence” could result in a positive impact on the suppliers inventory levels (e. in turn. It is well documented that the automotive industry has a long (at least 20 þ years) history of JIT adoption and implementation (Karlsson. These sectors were the automotive. 228 H2. Firms that participate in a JIT production chain will have an increased COGS to WIP inventory ratio after OEM JIT implementation.2 The literature review and what we have discussed about JIT production systems allow us to determine the following set of research hypotheses about the impact of implementing JIT systems: H1. and aircraft industries. Firms that participate in a JIT production chain will have an increased COGS to finished goods inventory ratio after OEM JIT implementation. particularly if the latter are small companies. These three sectors were chosen due to the history and nature of JIT adoption and implementation within each industry. 1994. WIP. to some degree. reducing the OEMs own inventory levels. Thus. She states that competition is time-based in the electronics manufacturing and that the lead-time performance of order-fulfillment emphasizes the success or failure of any technology firm. Although her research focuses on the electronics industry she does provide evidence that the pressure for progressive reduction in lead-times is independent of industry or market sector. Firms that participate in a JIT production chain will have an increased inventory turnover ratio after OEM JIT implementation. H4. can impose a JIT delivery schedule on their suppliers. The aircraft and electronics industries may not have the length of JIT adoption history that the automotive industry has. This is revealed in Helo’s (2004) research in the area of agility and productivity. Downloaded by RMIT University At 00:14 03 February 2016 (PT) H5.g. Lyons et al. We will study the impact of the adoption of JIT production by different OEMs on the inventory profiles of their suppliers. the purpose of this paper is to analyze the extent to which entire groups of OEM suppliers demonstrated improved. worsened. H3. The findings from the study will also indicate whether suppliers reduced their inventory levels. electronics. Three specific industry sectors where OEMs had adopted and implemented JIT principles were identified. 2004). These OEMs have the capability of influencing their suppliers to make JIT deliveries. and finished goods. High profile cases include OEMs in mass customization such as Dell and aircraft manufacturing such as . reducing raw materials inventories at the OEM’s premises at the possible expense of increasing inventories at the supplier’s location). Firms that participate in a JIT production chain will have a decreased level of inventory as a percent of total assets after OEM JIT implementation. IMDS Research hypotheses 106.

As the research purpose herein is to analyze groups of OEM suppliers within those systems three industries. Firms without availability of data on the RI database. an initial sample of firms was compiled using the research insight (RI) database for each SIC code. yearly financial data for at least a ten-year time frame were obtained from the RI database for each firm. allowing comparative analysis. The RI database contains an Downloaded by RMIT University At 00:14 03 February 2016 (PT) abundant amount of information for companies listed on the New York Stock Exchange and the National Security Dealer Automated Quotation System. four-digit SIC codes are used to identify specific industry OEM suppliers. From the initial sample of firms in each industry. Once the SIC codes were determined. canopies. The data contained in RI is current and easily accessible. and firms that were considered pure OEMs or were primarily OEMs (i. Initial (final) Industry Industry SIC codes sample size Automotive 2531-public building and related furniture: automotive seats 62 (44) firms 2892-explosives: airbag deployment 3365-aluminum foundries: aluminum castings 3469-metal stampings 3711-motor vehicles and passenger car bodies 3714-motor vehicle parts and accessories 3792-travel trailers and campers: pickup covers. several firms were eliminated.e. or caps Electronics 3572-computer storage devices 402 (249) firms 3575-computer terminals 3576-computer communications equipment 3577-computer peripheral equipment. The four-digit SIC codes for the OEM suppliers as well as the initial and final sample sizes are presented in Table I. NEC Table I. Aircraft 3724-aircraft engines and engine parts 26 (23) firms Four-digit SIC codes used 3728-aircraft parts and auxiliary equipment in the analysis . Boeing. firms with more than 50 percent sales revenue characterized as OEM) were removed from the sample. Subsequently. Table AI in the Appendix contains basic descriptions and financial information by SIC code of the companies included in this study. Additional discussion on time-based competition within the PC industry is Impact of JIT provided by Curry and Kenney (1999) and for component market disruptions by inventory Papadakis (2003). 229 No attempt was made determine the depth or success of implementation by these suppliers as it is assumed that as the sector’s OEMs adopted and implemented JIT principles the OEM supplier’s hand would be forced to align their own inventory principles with that of the OEM. NEC 3670-electronic components and accessories 3672-printed circuit boards 3674-semiconductors and related devices 3677-electronic coils. firms that had gone out of business during the period analyzed. transformers and other inductors 3678-electronic connectors 3679-electronic components.

IMDS Data analyzed 106.2 The research was designed to examine five financial measures of inventory management performance. The results are presented in the following section. but from the averages listed in Table III there is an upward movement in the IT measurement. Finally. Scaling inventories by COGS results in relative measures of inventory management performance. followed by a discussion of the Tukey’s post-hoc tests. and COGSFG do not contain significant differences at a 0. COGSWIP. This would suggest that IT ratios have been improving over the ten-year time frame. A one factor analysis of variance (ANOVA) was used to test the aforementioned hypotheses. Significant differences appear in the inventory to total assets measurement at the 0. Over the ten-year time frame the ratio has decreased. WIP and FG inventories allow for comparison across different firm sizes and allow for insight into the movement of inventories 230 through the manufacturing process. However. 1994-2004. These ratios provide a simple. Table II displays the five measures along with their definitions. From the p-values in Table III it can be noted that COGSRM. This decrease could be characterized by firms holding less inventories as their total assets held stable or increased and may be attributable to JIT practices. caution must be taken in this interpretation since there appears to be no difference in any of the other inventory measures. accurate measure of inventory management performance. The automotive sector is discussed first followed by the electronics sector and finally the aircraft sector. WIP inventories Higher the better Measures of inventory COGS to finished goods inventory Ratio of cost of goods sold to management (COGSFG) finished goods inventories Higher the better performance used in the Inventory as a percent of total assets Ratio of total inventories to analysis (I2TA) total assets Lower the better . Although it is assumed that this capital shift was allocated to productive Financial measure Definition Interpretation Inventory turnover Ratio of cost of goods sold to (IT) total inventories Higher the better COGS to raw materials inventory Ratio of cost of goods sold to (COGSRM) raw materials inventories Higher the better COGS to WIP inventory (COGSWIP) Ratio of cost of goods sold to Table II.05 level. The inventory measurement IT has a p-value of 0. Table III displays the ANOVA and the statistical results for the automotive sector. was studied for the automotive sector. a Tukey’s post-hoc test was employed to interpret statistical pairwise differences between level means. A discussion of the ANOVA results is presented in the first place.05 level. where needed. Results Downloaded by RMIT University At 00:14 03 February 2016 (PT) The statistical results for the three industrial sectors are presented next. Automotive supplier sector statistical results An 11-year time frame. The use of COGS to RM.05 level of significance.06 which is not significant at the 0.

40 24. Nonetheless.16 53.48 0. The inventory performance measures of IT and COGSFG did not exhibit significant differences at the 0.72 0.25 25.24 24. the Tukey’s post-hoc analysis did not find any significant pairwise differences between the inventory to total asset ratios. these results could conclude that electronics suppliers have done a good job of improving raw materials and WIP turnover while lowering inventory to asset ratios.38 28.05 level.8 2.05 0.15 2003 9.15 2002 9. Impact of JIT Automotive sector ratio averages Ratio IT COGSRM COGSWIP COGSFG I2TA inventory 1994 6. COGSWIP.21 1996 7.76 0.16 30.98 0.08 automotive supplier p-value 0.78 0.87 36. one could conclude that firms just “loaded up” on non-inventory assets like plant and equipment but kept the same inventory policies as in previous years.84 36.99 67.28 23. These results contrast each other.14 66. .90 32.02 sector assets.81 40.63 0.97 23.18 0.24 systems 1995 7.98 0.34 67.31 0. it can be said that within the automotive supplier sector inventories definitely make up a smaller percentage of total assets in 2004 than they did ten years previous. and I2TA contained significant differences at a 0. One may speculate that the results present contradictory conclusions.29 31. ANOVA Statistical results for the Downloaded by RMIT University At 00:14 03 February 2016 (PT) F 1.77 37.95 0.48 46.24 0. IT and COGSFG were not significantly different over the ten-year time frame.52 58.66 0.07 34.69 0.74 74. Contrary to this is the notion that although the electronics firms did improve raw materials and WIP turnover they did not significantly change overall IT or finished goods inventory.39 0.16 2000 8.57 23. This is most likely occurring due to large variances between groups and the power of the test itself (the Tukey’s post-hoc test is deemed the most appropriate for this situation but is also a very powerful test).80 58. Table IV displays the ANOVA and the statistical results for the electronics sector. This raises a question whether overall inventory performance changed over the time frame studied.16 2001 8.30 0. For the automotive industry.89 33.17 1999 8.79 30.02 24.19 1997 7.18 231 1998 8.15 65. On the one hand.42 0.70 47. Electronics supplier sector statistical results A ten-year time frame was studied for the electronics sector.06 0. It appears that as COGSRM and COGSWIP improved.05 level of significance.30 58.00 27.64 64. From this it may be concluded that the improvement in raw materials and WIP turnover has really come at the expense of stagnant finished goods and overall IT.33 28.15 2004 10.13 Table III. From the p-values in Table IV it can be noted that COGSRM.41 49. This study does not examine how or where the assets were shifted. The time frame used here differed from the other two sectors due mainly to amount and reliability of data prior to 1995.

or take-overs) to make this claim plausible. The first subset.45 23.15 Table IV.00 0.75 8.21 232 1998 4.16 2003 5. No significant pairwise differences were found for the COGSWIP measure. The Tukey’s post-hoc analysis identified significant pairwise differences in the COGSRM and I2TA measures.22 40.e.80 18.13 0.95 0. Two subsets are identified for the COGSRM data. buyouts.28 0.00 The significant difference in the inventory to total assets ratios does lend some credence that electronics suppliers are improving (decreasing) inventory levels.33 25.49 0. the inventory to total asset ratio may have improved through firms adding assets to their balance sheets while keeping inventory levels roughly constant.30 * * 10.02 22.25 to 25.33 29. This conclusion is reinforced when examining the categorization from the Tukey’s homogeneous subsets test results displayed in Table VI.10 level .23 1996 4.17 2001 4.29 20.53 0.67 20.02 to 27. It can be observed that a split of sorts occurs around the 2002-2003 time frame as the 2002 and 2003 years lie solely in subset two with 2004 being a “swing” year. * * significant at the 0. it appears that the years 2002 and 2003 are significantly different than the years of 1995 and 1996. There is enough anecdotal evidence within the electronics industry of asset acquisitions (i.03 * comparisons for COGSRM Notes: * Significant at the 0.04 27. contains eight means from 17. Notice that the groups are reordered by the magnitude of their means. ANOVA Statistical results for the F 0.05 level.62 39.31 21. listed in the column labeled 1 in Table VI.77 33. However.81 3.89 0.17 2002 5.00 0. From Table V.94 2. IMDS Electronics sector ratio averages 106.25 22.67 0.26 * * 10.27 22.94 0.92 29.53 22.18 2000 4.03 Downloaded by RMIT University At 00:14 03 February 2016 (PT) electronics supplier sector p-value 0.2 Ratio IT COGSRM COGSWIP COGSFG I2TA 1995 4.45 22.23 20.37 21. mergers.16 39. The Tukey’s significance reinforces this notion that COGSRM ratios tended to improve Mean difference (i 2 j) year j Year i 1996 1995 Table V.19 1999 5.57 0.72 19.98 21.15 2004 5.60 0. 2003 9.66 0.35.26 0.48 25. The Tukey’s results for COGSRM will be discussed first followed by the results for I2TA.78 23. It appears that COGSRM ratios have improved (increased) over the last ten years.36 27. and the second has eight means from 18.20 0.90 17.32 21.06 * Tukey HSD multiple 2002 9.52 21.05 21.19 38.21 1997 4. Tukey’s multiple range test provides subsets of means that do not differ from one another based on a level of significance.32.

28 2004 25.1683 0. Impact of JIT Subsets (a ¼ 0.1745 0.054 * 2 0.2269 Tukey homogeneous subset range test for Note: Means for groups in homogeneous subsets are displayed I2TA .057 * 2 0.1916 1997 0.060 * 2 0.1683 2000 0.052 * 1999 – – – 2 0.1806 1998 0.05) Year 1 2 3 4 5 2003 0.067 * 2001 – 2 0.2069 0.33 21. Table VIII contains the results Mean difference (i 2 j) Year j Year i 1998 1997 1996 1995 2004 2 0.37 19.1745 0.77 233 2001 21.1503 2002 0. Tukey HSD multiple Notes: * Significant at the 0.02 18.1595 0. 1995 0.080 * 2002 – 2 0. * * significant at the 0.077 * 2003 2 0.1916 0.1745 1999 0.10 level comparisons Subsets (a ¼ 0.046 * Table VII.2131 Table VIII.05 level.32 systems 2002 27.041 * 2 0.62 2000 21.02 1997 19.62 21. The trend of decreasing I2TA ratios is supported statistically by the Tukey’s multiple comparison tests.33 1998 21.1595 2001 0.2069 0.37 1996 18. 1995 17.35 25.063 * 2 0.77 22.2131 0.1806 0.35 1999 22.1745 0.1916 0.1471 2004 0.039 * * 2 0.047 * 2 0.045 * 2 0.2069 1996 0.05) 1 2 inventory 2003 27.045 * 2 0.059 * 2000 – – – 2 0.1806 0.1806 0.066 * 2 0.02 Table VI.1916 0.1683 0.02 21.25 Tukey homogeneous subset range test for Note: Means for groups in homogeneous subsets are displayed COGSRM Downloaded by RMIT University At 00:14 03 February 2016 (PT) over the ten-year period of this study and the older ratios are statistically different than the newer ratios. From Table VII it can be seen that significant differences in I2TA ratios occur for the years 1995 through 2004.

27 1996 3.2269.2 data.1745 to 0. Table IX displays the ANOVA and the statistical results for the aircraft sector.03 7.18 9.24 2003 3. These splits indirectly indicate periods of significantly different levels of the I2TA ratio.42 0. Downloaded by RMIT University At 00:14 03 February 2016 (PT) Aircraft supplier sector statistical results An 11-year time frame. the second has five means from 0. These two Aircraft sector ratio averages Year IT COGSRM COGSWIP COGSFG I2TA 1994 3.10 25. These five subsets could be interpreted as five possible breakpoints where significant changes occurred in the I2TA ratios. IT rates for aircraft OEMs has shown an increase since 1994.75 14.28 1995 3.65 0. Five subsets are identified for the I2TA 106. These levels of improvement could be attributable to technical as well as overall supply chain improvements within the electronics supplier sector.06 7.67 0.65 34.1595 to 0.1683 to 0.15 0.50 0.30 0.2069.59 0.53 33.74 0.28 10.73 39. a comparison between aircraft suppliers and OEMs is made to highlight similarities or differences.82 0. it appears that inventory to total assets cascaded through four levels of improvement over the 1995-2004 time frame. while the ratio decreases for suppliers from 1994 to 1999 it then levels off from 2000 to 2003 only to fall in 2004 to a level comparable to the OEMs.28 1997 3.81 12. contains six means from 0. Figure 1 shows IT rates and Figure 2 shows the ratio of inventory to total assets over the ten-year period for aircraft suppliers versus OEMs.19 1.07 0.40 79.2131. In the case of the electronics suppliers. However.13 0.65 12.87 33.38 30.1471 to 0.1806.24 2004 4.00 0.35 11.95 8.24 2002 3.55 11.04 9.17 10. It can be noted that in Figure 1.64 0. listed in the column labeled 1 in Table VIII. ANOVA Statistical results for the F 0. the fourth has five means from 0. 2000-2001. 1994-2004. the third has five means from 0.36 10.24 2000 3.78 0.93 11.01 0.25 1998 3. it can be observed that the inventory to total assets ratio decreases for both OEMs as well as suppliers. was employed to study the aircraft supplier sector.23 1999 3.43 .27 9.02 9. IMDS of the Tukey homogeneous subset range test. These results run contrary to the anecdotal evidence on JIT practices within the aircraft industry.79 0.65 29.75 0.16 Table IX.05 level of significance.66 9. 2001-2002.59 12.35 11. the rate of decrease for OEMs tended to be more measured.02 aircraft supplier sector p-value 0.1806.83 35. From Figure 2.12 99.08 10.25 2001 3. and 234 the fifth has means from 0. and 1998-1999 time frame. whereas no significant increase is seen for aircraft suppliers. It can be observed that splits occur around the 2002-2004. From Table IX it can be noted that none of the inventory performance ratios contain significant differences at a 0.19 16. The first subset.1916 to 0. Therefore.13 24.68 1.80 9.

50 235 6.18 3.00 ratios aircraft suppliers vs 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 OEMs 1994-2004 Year observations lend credence to the idea that aircraft OEMs inventory policies may be having a detrimental impact on the aircraft OEMs suppliers’ inventory performance measures.00 inventory 7.16 0.02 3. IT ratios aircraft suppliers 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 vs OEMs 1994-2004 Year Supplier vs OEM Inventory to Total Assets Ratio 0. Supplier vs OEM Inventory Turnover Ratios Impact of JIT 9.87 5.18 4.82 3.25 0.70 5.00 Figure 1.50 5.03 4.15 0.62 2.66 4.24 0.10 0.25 0.27 0.21 0.08 4.24 0.33 OEM I2TA Supplier I2TA 0.00 5.14 0.36 3.88 Downloaded by RMIT University At 00:14 03 February 2016 (PT) 1.23 0.00 0.35 3.00 6.00 4.30 0.15 0.00 1.28 3.28 0.00 OEMS IT Suppliers IT 7.20 0.91 systems 8.25 0.15 0.24 0.19 3.27 3.24 0.26 0.00 3. However.30 0.26 0.25 0. If the impact of inventory management policy was the same for OEMs and their suppliers one should observe similar patterns in the IT and inventory to total asset ratios of these sectors.28 0.17 3. . from Figures 1 and 2 there does not appear to be relevant similarities between these two ratios for aircraft OEMs and their suppliers. Inventory to total assets 0.05 Figure 2.20 0.00 2.35 0.59 3.35 3.22 0.

and aircraft. In contrast. and COGSFG ratios after OEM JIT implementation. COGSRM.06 0.67 0. for finished goods. one interpretation could be that suppliers to automotive OEMs have not yet adopted and Downloaded by RMIT University At 00:14 03 February 2016 (PT) implemented JIT policies en-mass. Suppliers in the electronics industry showed significant differences in COGSRM.67 . inventory performance measures have improved. the results could also be interpreted as further corroborating the allegation common in the USA that OEMs tend to push their inventory requirements backward onto their suppliers (Lieberman et al.05 level .01 * 0. It was shown that the I2TA ratio did show significant changes. However.98 0.0.0. These findings are consistent and support the view that suppliers are meeting service level requirements by maintaining or holding higher levels of finished goods inventory. and I2TA. However.95 0.e. raw materials and WIP) controlled primarily within the supplier’s organization itself. The authors suggest more research regarding JIT adoption and implementation policies with the automotive supplier ranks must be done before either of these conclusions can be verified. The research examined five financial measures of inventory management performance for groups of OEM suppliers within three manufacturing industries: automotive. This concept of managing opposing goals of pushing for lower inventories while attempting to increase fill rates and on-time deliveries have been discussed by Hanfield and Nichols (1999).05 significance level automotive sector firms participating in a JIT production chain did not have statistically significant changes in the IT. the inventory performance measures of IT and COGSFG did not exhibit significant differences. H1 H2 H3 H4 H5 Increased IT Increased Increased Increased Decreased Sector ratio COGSRM ratio COGSWIP ratio COGSFG ratio I2TA ratio Automotive 0. Explanations for these findings may include increased product proliferation and more stringent requirements imposed on suppliers creating a “lump in the snake” analogy. However. It becomes clear that for the inventory types (i. Aircraft 0.49 . COGSWIP. From these results it appears that automotive OEM suppliers have not fully adopted and/or implemented JIT inventory policies. COGSWIP. electronics.65 0.30 0. A detailed discussion of each sector’s results follows.63 0.0.01 * Table X. IMDS Discussion 106. These results contrast each other. The findings indicate that at a 0. 1995).. improvements have not been visualized.74 0.43 Hypothesis test results p-values and significance Note: * Significant at the 0.01 * . These inventory patterns may partly reflect the difficulty in coordinating supply chain management across supplier firms.02 * Electronics 0. For example. It appears that as COGSRM and COGSWIP improved.2 The impact of the JIT production policy adoption by different OEMs on the inventory profiles of their suppliers has been analyzed within this research. IT and COGSFG were not significantly different over the ten-year time frame. the findings may be interpreted in a multiple ways. Table X summarizes the hypothesis test results for each sector and hypothesis 236 tested. With time JIT policies will become the standard within automotive suppliers and in turn will positively influence their inventory performance measures.

strategic changes within the supplier . One simple interpretation of these results is that aircraft OEM suppliers exist in a market that is inherently “pull” oriented. whether brought about by changes in output or from shocks. and aircraft sectors have shown mixed results in the impact JIT implementation has had on inventory performance measures. Dell) create inefficiencies for firms at other levels (i. Ramey’s discussion brings to light the broad notion that shifts in demand for inventories. COGS to raw materials (COGSRM). both of which can be related to JIT implementation. are important sources of economic fluctuations. However. In sum. As the electronics industry continually innovates and develops new products the Impact of JIT number of finished goods stockkeeping units these firms must hold increases. it appears that OEM suppliers in the automotive. each new set of aircraft orders could be viewed more as a new “project” then a continuation of a current production run as in the automotive industry. the aircraft industry is not a build-to-stock industry. In turn. Researchers such as Poirer and Reiter (1996) have also discussed the issue of whether systems improvement efforts of firms at one level of the distribution channel (i. Ramey (1989) portends that inventory volatility in uncertain economic conditions can be broken into two areas: changes in output (in which JIT strategies could impact inventories) and unobserved shocks (in which technology changes could impact inventories). the end result may be that inventory builds up like a “lump in the snake” and is just moved further downstream in the distribution channel with the end result of no system wide improvement at all. In the case of the aircraft sector.e. either failing completely or undergoing long and painful restructuring. electronics. 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. Figures 1 and 2 show that OEM suppliers tend to lag OEMs when it comes to inventory performance measures.e. In a sense. COGS to WIP (COGSWIP). He explains that some firms capitalize on innovative strategies that improve inventory performance while other firms adopt these strategies late or do not adopt them at all and fall behind. Schonberger (1996) makes a case that inventory performance repeats a V-style pattern over longer periods of time. In other words. Fluctuations in inventory levels do come from different sources including prevailing economic conditions and long-term corporate management strategies. or inventory to total assets ratios were found. This most likely is attributed to the large capital investments and longer lead times in the manufacture of aircraft. key board suppliers). no statistically significant change in IT. OEMs such as Dell have succeeded in improving their inventory performance but industries that sell heavily to 237 these OEMs may not have experienced significant differences in inventory performance over the same time frame. In both of these cases. inventory they find it necessary to hold higher inventory levels for a given dollar sales volume. Other than a small inventory of repair or replacement parts the aircraft OEM suppliers will hold as much inventory as needed to complete the orders on the OEM books. Orders for new aircraft are announced months prior to manufacture and aircraft OEM suppliers have time to ramp up their operations to match those orders. In general. Although aircraft OEM suppliers may know when orders are considered “firm” those orders may entail considerable investments of time and money by the OEM and as well as the OEMs suppliers. COGS to finished goods Downloaded by RMIT University At 00:14 03 February 2016 (PT) (COGSFG).

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1796 3714-Motor vehicle parts and accessories (39) 8. Rosen.1378 3672-Printed circuit boards (17) 7.85 0.1804 3670-Electronic components and accessories (10) 5.2536 Table AI.72 0. C. Further reading Impact of JIT Canel.71 0. transformers and other inductors (1) 6. pp.1602 3677-Electronic coils. Kros can be contacted at: krosj@mail.1667 3792-Travel trailers/campers.1448 3469-Metal stampings (1) 10. D.60 0.23 0. NEC (24) 4.0654 3711-Motor vehicles and passenger car bodies (1) 5.32 0.ecu.2222 3674-Semiconductors and related devices (102) 4. 51-60.A. NEC (29) 5. systems Appendix 241 Average Average inventory inventory to total Industry Industry SIC codes turnover assets 2531-Public building/related furniture: automotive Automotive (1994-2004) seats (1) 11.46 0. Industrial Management & Data Systems. E.2724 Electronics (1995-2004) 3572-Computer storage devices (19) 7.1760 3577-Computer peripheral equipment.2456 ratios Corresponding author John F.com/reprints . 100 Nos 1/2.. and Anderson.2309 inventory based financial 3728-Aircraft parts and auxiliary equipment (17) 3.23 0. 3678-Electronic connectors (5) 4. pickup covers/canopies/caps (1) 8.57 0.emeraldinsight.1869 Four-digit SIC codes used 3679-Electronic components. Vol.1442 Downloaded by RMIT University At 00:14 03 February 2016 (PT) 3365-Aluminum foundries: aluminum castings (1) 6.34 0.16 0.12 0.1599 2892-Explosives: airbag deployment (1) 7.1978 3576-Computer communications equipment (38) 4.22 0.edu To purchase reprints of this article please e-mail: reprints@emeraldinsight. (2000).91 0.90 0.1547 3575-Computer terminals (4) 3.55 0.1855 in the analysis including Aircraft (1994-2004) 3724-Aircraft engines and engine parts (6) 3. “Just-in-time is not just for manufacturing: a inventory service perspective”.com Or visit our web site for further details: www.54 0.44 0.50 0.

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