Numerous normative models have been developed to determine optimal inventory levels, and several articles and case studies have been written about the concerted efforts and practices adopted by manufacturing firms in the United States to reduce inventories. But little is known about whether inventories have indeed decreased in U.S. manufacturing and whether such a decrease has been restricted to a few well-publicized firms or is true at an industry level. Using data published by the U.S. Census Bureau, the authors study trends in materials, work-in-process, and finished-goods inventory ratios during the period 1961 to 1994 in 20 manufacturing industry sectors and the total U.S. manufacturing sector to determine whether a significant decrease was seen in these ratios. Further, since a great deal of momentum for inventory reduction began in the early 1980s, the authors investigate whether greater improvement was seen in the post-1980 period as compared with the pre-1980 period. We find that material and work-in-process inventories did decrease in a majority of the two-digit industry sectors from 1961 to 1994 and showed greater improvement in about half the sectors in the post-1980 period relative to the pre-1980 period. Finished-goods inventories did decrease in some industry sectors and increase in a few others but did not show a significant trend in more than half the sectors. Total manufacturing inventory ratios decreased from 1961 to 1994 at all three stages---material, work-in-process, and finished goods. However, total manufacturing inventory ratios did not improve at a higher rate during the post-1980 period as compared with the pre-1980 period in any of the three stages. Overall, the analysis provides an encouraging but somewhat mixed picture about the results of U.S. manufacturing inventory-reduction efforts.Manufacturing, Inventory, Empirical Study, Time Series
While quality has attracted significant attention in the past two decades, the debate is still on as to whether a firm should aim for zero defects or base its quality decisions on cost-benefit trade-offs. The continuous improvement advocates generally eschew the cost trade-off approach, but U.S. firms, after spending substantial sums on quality-related activities in the 1980s, appear to be focusing again on cost trade-offs and measures such as return on quality. This paper provides analytical support for the continuous improvement argument while relying on a cost trade-off analysis. We present a dynamic model of a monopolist making decisions on price, production, process improvement, and quality assurance efforts. The model is comprehensive and captures the effects of autonomous and induced learning on both productivity and quality and incorporates quality related costs in detail. Using this model, we show that quality improves over time, while process improvement effort and quality assurance effort decrease over time. In fact, as anecdotal and empirical evidence suggests, process improvement and quality assurance effort is high when quality level is low, and vice-versa. The optimal production rate is increasing and the optimal price is decreasing over time. We also provide valuable insights into the impact of changes in key parameters such as interest rates on production, price, process improvement effort, and quality assurance effort.Quality Improvement, Process Improvement, Learning Effects, Quality Costs, Productivity
Some firms make all their products to order while others make them to stock. There are a number of firms that maintain a middle ground, where some items are made to stock and others are made to order. This paper was motivated by a consumer product company faced with the decision about which items to make to stock and which ones to make to order, and the inventory and production policy for the make-to-stock items. The production environment is characterized by multiple items, setup times between the production of consecutive items, limited capacity, and congestion effects. In such an environment, making an item to order reduces inventory costs for that item, but might increase the lot size and inventory costs for the items made to stock. Also, lead times increase because of congestion effects, resulting in higher safety stocks for make-to-stock items and lower service levels for make-to-order items, thus leading to a complex trade-off. We develop a nonlinear, integer programming formulation of the problem. We present an efficient heuristic to solve the problem, which was motivated by key results for a special case of the problem without congestion effects that can be solved optimally. We also develop a lower bound to evaluate the performance of the heuristic. A computational study indicates that the heuristic performs well. We discuss the application of the model in a large firm and the resulting insights. We also provide insights into the impact of various problem parameters on the make-to-order versus make-to-stock decisions using a computational study. In particular, we find that the average number of setups of an item selected for make-to-stock production is always less than half the average number of setups of the item if it were to be made to order. Also, factors other than an item's demand, such as its setup time, processing time, and unit holding cost, impact the make-to-order versus make-to-stock decision.Inventory/Production, Approximations/Heuristics, Multi-Item, Stochastic Batch Production System
In this paper, we study the standardization and customization decisions of two firms in a competitive setting, along with variety, lead time, and price decisions. We incorporate consumer heterogeneity both in firm preference (or store convenience) and in product attribute preferences. We find that the equilibrium outcome depends on the cost efficiencies of the production technologies as well as the consumer sensitivity to product fit and lead time. We develop an index that signifies the relative attractiveness of the standardization and customization strategies, and the potential outcomes. We identify the strategic roles of product variety and lead time in the competition. In contrast to the previous literature, we find that increasing the variety will not intensify the price competition if there is sufficient firm differentiation. Rather, it relieves the price pressure for the firm as it satisfies consumer needs better and enables higher price premiums. We also analyze the impact of asymmetric variable costs, fixed costs, and brand reputation on the equilibrium decisions.customization, product differentiation, product variety, competition
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.
customersupport@researchsolutions.com
10624 S. Eastern Ave., Ste. A-614
Henderson, NV 89052, USA
Copyright © 2024 scite LLC. All rights reserved.
Made with 💙 for researchers
Part of the Research Solutions Family.