The literature on JIT production suggests a causal link between work-in-process inventory and manufacturing productivity.Such a connection has been described in numerous case studies but never tested statistically. This paper uses historical data for 52Japanese automotive companies to evaluate the inventory-productivity relationship. We find that firms increased their productivity rank during periods of substantial inventory reduction.More detailed tests suggest that inventory reductions stimulated gains in productivity: on average, each 10°/0 reduction in inventory led to about a 10/0gain in labor productivity, with a lag of about one year. Such effects were more immediate for Toyota affiliates but undetectable for close suppliers of Nissan. These findings imply that inventory reduction served as an important driver of process improvement for many Japanese automotive companies, although some firms emphasized other methods.

This study uses survey data on several hundred automotive suppliers in North America to evaluate the determinants of inventory levels in high-volume discrete parts manufacturing. We assess the magnitude of raw materials, work-in-process, and finished goods inventories, as well as production lot sizes and through-put times. Results are broadly consistent with the EOQ formula and related models of optimal inventory holding. Inventories are shown to be jointly determined by technological factors and managerial practices.Several categories of managerial practices are found to be important. Low inventories are linked to employee training and problem solving activities and frequent communication with customers. More unexpected findings show the absence of inventory differences between USowned and Japanese-owned plants operating in the United States. This suggests that Japanese transplant parts makers have not been completely successful in adapting Japanese manufacturing methods to the US environment.

a b s t r a c tCreating competitive advantage based on operations capabilities is likely to require much analysis and communication within the operations function. At the same time, much communication and joint strategizing with the top and other functional executives is likely to be needed as well. Hence, given that operations executives have limited time and also have to perform many other routine tasks, they need to manage two tradeoffs. The first one is between the time spent on strategy making and the time spent on everything else. The other is within strategy making, between the time spent on "functional deliberation" within the operations function and "top-level communication" with other executives. Using a survey of 134 operations executives, we find that an increase in the time the operations executive spends on strategy making is positively associated with performance in complex and hostile environments and when the relative strength of the operations function within the firm is low. Within the operations executive's strategy making, an increased emphasis on top-level communication is positively associated with performance in environments that are complex, stable (less uncertain), or hostile.