Reducing Inventory and Improving Productivity : Evidence from the PIMS Data

This paper tries to examine the effectiveness of inventory reduction to the productivity increase and the impact of production environments on its effectiveness utilizing the Profit Impact of Market Strategy (PIMS) Database from the Strategic Planning Institute, a large data set that covers a variety of manufacturing activities from the early 1970s to late 1980s. The empirical results of this paper support the robustness of the principle of "Lean Production" or JIT system (also referred to as "Stockless Production"). We also find that the overall environment in which manufacturing strategic business units operate is an important factor in determining the different degrees of effectiveness of the work-in process (and raw materials) invertory reductions. In particular, we find that the effectiveness of the work-in process reduction varies according to the position in the product life cycly as well as the complexity and characteristics of the production processes.roduction processes.