Essays on just -in -time manufacturing

Nerses S Kazarian, Purdue University

Abstract

The first essay examines Just-in-Time (JIT) manufacturing systems by incorporating the Economic Order Quantity (EOQ) model from operations research into a product market duopoly. We consider a two-stage game in which firms first simultaneously decide whether or not to invest in setup cost reduction and then simultaneously choose stationary production plans and sales paths. Embedded in the second stage game is the classical trade-off between setup and inventory holding costs. We obtain a tractable set of equilibria by refining subgame perfection with a forward induction argument and examine the effect of market structure on equilibrium setup cost reduction, batch sizes, and inventory levels. We show that relative to a monopoly, firms in a duopoly equilibrium may underinvest or overinvest depending on parameter values. We also show that in any duopoly equilibrium in which both firms are active, both duopolists have fewer inventories but also lower inventory turnover rates. Our results are consistent with the available empirical evidence. In the second essay we examine the impact of JIT production methods on the inventory utilization and the profitability of a sample of U.S. manufacturing firms that adopted JIT in the 1980s. We find that after the adoption of JIT methods, sample firms exhibit much more significant improvements in the total inventory utilization than the median firms in their industries. The most significant impact of JIT is on the utilization of the work-in-process (WIP) inventory component. After the adoption of JIT, sample firms also show short-term improvements in their profitability measures, but these improvements dissipate in later post-adoption years. We conclude that the adoption of JIT methods did not have a lasting impact on the profitability measures of sample firms.

Degree

Ph.D.

Advisors

Dada, Purdue University.

Subject Area

Economics|Management|Business costs

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