In this paper, we addressed the issue of whether
the events of 11 September 2001 and the
subsequent uncertainties in the environment
called for a rethinking on the benefits of systems
such as JIT that assume a streamlined and
seamless functioning supply chain. The large
number of articles both advocating changes to
systems and those advocating continuation of the
JIT systems in professional business journals and
newspapers shows the importance of this issue and
the degree of confusion that surrounds it.
We developed an information and incentive
effects model within the inventory control
framework to address this issue. The traditional
inventory models minimize the total expected
holding, obsolescence, set-up (lead time) and
stock-out costs. In the traditional frame, JIT
refers to the reduction of set-up (lead time) and
similar costs that leads to a lower optimal
inventory. However, the traditional model
ignores the informational and incentive role of
inventory levels. Lowering the inventory levels
induces the managers to work “smarter”. They
will not be able to hide bad performance behind
large inventories. In other words, smaller
inventories provide greater information on the
efficacy of their efforts and help induce higher
effort with lower cost and lower noise in the
system. Therefore, another dimension of JIT is
to forcibly reduce the average inventory to a
level below the optimal level of the traditional
system and induce the managers to work smartly
and use their knowledge, skill and effort to
improve the production-inventory process.
It is the informational and incentive aspects of
JIT that gives us insights on the effect of loss of
controllability. A partial loss of control on the
environment because of the destabilizing effect
of external crises makes the inventory a poorer
signal of the managerial effort. A large inventory
no longer conveys bad performance and a
smaller inventory does not mean that the
managers have to work smarter because working
smarter does not have the same benefits as
before because of loss of control. This, in effect,
makes JIT less beneficial.
However, it is important for an organization to
distinguish between the temporary and permanent
effects of the crisis. There are some permanent
effects such as the increased security and delay of
the cargo from international destinations.
However, the disruption of the flight schedules is a
temporary effect. An agile organization adapts its
systems (inventory systems included) permanently
to permanent changes in the environment but
judiciously modifies the system to counter
temporary effects. One thing is clear. The concept
of JIT, in so far as it relates to informational and
incentive effects, is an important one.
Notes