Ultimately, JIT purchasing should correlate with performance
because otherwise, from a managerial perspective,
there would be little interest in the application of JIT. JIT purchasing is expected to correlate with efficiency,
financial performance, and market performance,
which are three kinds of performance indicators. First the
amount of inbound inventory on hand (in weeks of supply)
should decline as JIT purchasing increases. Indeed,
the ability of effective JIT implementation to "squeeze
inventory out of the system" was mentioned earlier. A
second dimension of performance is studied: that of financial
performance relative to the firm's primary industry.
Thus, we can ask whether the relative financial performance
of the firm improves as JIT purchasing
increases. We advocate that it does due to higher inventory
turns, lower inventory levels, and assorted financial
benefits that accrue from higher quality inbound materials:
e.g., less scrap, rework, and returns. Third and finally,
market performance refers to growth, and we expect
JIT purchasing to be associated with growth
(relative to the firm's primary industry). Two processes
may be at work: (1) the market may reward the higher
quality products delivered on time and (2) the market
may reward lower prices, if the firm passes them along,
that result from a lower cost structure [15-18]. The following
hypothesis is proposed.