Saturday, March 6, 2010

The Just-In-Time Economy

I was doing some thinking about the role of automation and computers in the economy, and thought to look up the ratio of inventories to sales.  It turns that the Bureau of Economic Analysis has tables 5.7.5.A (through 1997), and 5.7.6.B (from 1996 through Q1 2009) which both show the ratio of private inventories to final sales on a quarterly basis (but with sales expressed at a monthly rate).  I'm not quite sure the reason for the two tables, and they may not be exactly the same measurement, but they seem to tell about the same story:

  • Inventories have fallen from about 6 months worth of final sales right after WWII, to just over 2 months worth and still trending down slowly.  
  • Volatility of this ratio in recessions has almost disappeared, indicating the system can now respond very rapidly to changes in final demand.
I assume the major driver here is increasing supply chain co-ordination, via the use of computers and telecommunications, allowing for far less inventory to be held at all stages of the production process.  Obviously, businesses have a strong reason not to hold inventory since it ties up capital with negative return (due to spoilage) that could be earning a positive return elsewhere.  A 60% reduction in inventory is really striking.

Of course, nothing could ever happen to all those computers, right?


Manolo said...

This is downright scary on many levels, as we are entering "strange times". The resilience of JIT is certainly very low. By observation (ex.:Katrina, Haiti, Chile)looting starts very early on in the rupture of these supply chains. On even larger scales, one has to wonder how this might play out. Hint: not pretty.

KLR said...

Professional trucker "the48thronin" had a dedicated thread at for Signs of the beginning of the breakdown of JIT distribution.. No new posts since August.

just-in-time inventory - Google Scholar

From "A Study on Just-in-Time Implementation in Portugal" [PDF]:

Data were collected from a mail questionnaire sent to a few
hundred firms in Portugal. The findings show that the surveyed firms view the Just-in-Time
system as a way to reduce inventories, to increase quality, and to eliminate waste. Despite
this good perception, less than 6% of the surveyed firms have the necessary conditions to
successfully implement a Just-in-Time system. A significant practical implication of this
study is that Portuguese firms should use Just-in-Time as a philosophy rather than as a
solution for operations-related problems. Another contribution is to point out the most
common difficulties for its implementation, so that Portuguese firms that want to do it can
be prepared to overcome those difficulties.

I caught a few news pieces about an office supply company and an HVAC outfit resorting to JIT to weather 2009, but nothing about its use on a macro scale. We'll know more when the BEA updates its series. said...

@ stuart: one reason for this development is that inventory = storage space = real estate. urbanization and decentralization have gone hand in glove in the u.s. after world war 2, and an ongoing goal is to minimize real estate cost.

@ manolo: i would be careful with placing disaster behavior in this context, especially as looting is regarded as a part of what is called "disaster myth" in the disaster research community (please refer to anything by quarantelli or dynes or disaster sociologists from the drc)...

CrocodileChuck said...

re: JIT supply chains

try driving around Tokyo during the week-the externalities of JIT delivery to factories multiple times per day will become evident (every fifth vehicle is a delivery truck/van).