Lean manufacturing (LM) is currently enjoying its second heyday. Companies in several industries are implementing lean practices to keep pace with the competition and achieve better results. In this article, we will concentrate on how companies can improve their inventory turnover performance through the use of lean practices. According to our main proposition, firms that widely apply lean practices have higher inventory turnover than those that do not rely on LM. However, there may be significant differences in inventory turnover even among lean manufacturers depending on their contingencies. Therefore, we also investigate how various contingency factors (production systems, order types, product types) influence the inventory turnover of lean manufacturers. We use cluster and correlation analysis to separate manufacturers based on the extent of their leanness and to examine the effect of contingencies. We acquired the data from the International Manufacturing Strategy Survey (IMSS) in ISIC sectors 28–35.
Every company has to invest in manufacturing management programs, methods and technologies in order to remain competitive. One very popular investment choice nowadays is lean production (LP), which consists of several manufacturing practices, including process focus, pull production, quality development, total productive maintenance, continuous improvement, worker empowerment, supplier development, and so on. The main objective of LP is to satisfy customer needs on the highest possible level through the elimination of waste. Some sources of waste are overproduction, faulty products, sub-optimized processes, unnecessary waiting, movement or transportation, and excess inventory.
However, if this is true, and several kinds of waste can be reduced, why does every company not implement LP, and why do some fail during the implementation process? In the early literature, researchers blamed various conditions: for example, excessive demand fluctuation, a high level of product variation, or low demand that therefore cannot justify a line production system or cellular manufacturing. A few years later, however, we read about successful lean manufacturing program implementation at companies and industries that were far from satisfying these conditions (e.g., health care, Fillingham, 2007). As a result, the question arises of whether LP can be successful under any circumstances and what results can be achieved if the circumstances are not ideal.
In this paper, we investigate how various contingency factors influence inventory turnover performance, a very important indicator of the success of LP in companies applying lean practices (see e.g., Huson and Nanda, 1995). For this purpose, we formulate the following research questions:
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How do lean practices affect firm inventory levels?
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How do certain contingency factors (production systems, order types and product types) influence corporate inventories within an LP environment?
The structure of the paper is as follows. First, we review the LP literature, including works on inventory performance and contingency issues, to form a basis for our propositions. Then we introduce our methodology and the survey. After our data analysis, the results are discussed and some conclusions are drawn.
We can draw several conclusions from this analysis. First, we found a significant relationship between LM practices and inventory turnover. Lean companies keep fewer inventories of any type. In addition, LM practices were mostly applied in environments described in lean theory.
Concerning contingency factors, we found that different types of inventories are sensitive to different contingency factors. WIP is affected strongly by the production system, while RM and FG are affected by the type of order. This link further emphasizes the importance of proper decoupling point placement in the supply chain. Product type, however, does not influence the efficiency of inventory management. It is important to note that if we focus on inventory turnover, cellular manufacturing may not be the best facility layout (though this layout is widely regarded as the one that suits LM best).
One limitation of our paper is the industrial context. The IMSS-IV survey was distributed to companies in the high-tech industry (ISIR 28-35), so our results can be fully applied only within these industries.
In further research, it may worth examining the differences among the individual industries of the ISIR 28–35 industries. In addition, our model could be extended to include other business performance indicators. In this way, we could see whether there is a direct relationship between inventory turnover and business performance or whether this effect is not that strong in itself.
Another possible method of further research would be to verify whether a product-process mismatch does really exist at such companies. As we mentioned in the Discussion section, we found a relationship between the processes and inventories we examined, but there was no relationship between the product types and inventories. This may have been caused by some kind of product-process mismatch, in which case this question should be addressed.
