"Evidence from Just-in-Time Supply Chains"

Abstract :

How efficiently supply networks can be managed on a day-to-day basis is an important and co-determined consideration when firms choose their trading partners in different locations and decide whether to outsource an intermediate input or vertically integrate with its supplier. Surprisingly, however, this interaction and its economic implications are not very well understood. To make progress, this paper investigates the role of Just-In-Time (JIT) supply chain management both conceptually and empirically. Using firm level survey, international trade, and ownership information from French manufacturers I document three novel empirical patterns : firms in JIT supply chains are bigger and more productive, transact relatively more with nearby partners, and tend to be more vertically integrated than their non-JIT counterparts, even within very narrow industries. These patterns are consistent with an adaptation cost rationale. Firms hold inventories as insurance against supply chain disruptions in an uncertain environment where adaptation decisions have to coordinated with suppliers and customers. JIT, a managerial technology where demand information travels upstream, improves coordination. The effect of JIT is stronger if production stages are controlled by a single entity and more valuable if suppliers are close by. I successfully test further predictions of the model and show that these complementarities are more pronounced in industry pairs where demand is more predictable, inventories cannot be forced upon suppliers, and where inventories are more costly.