The Incentive Value of Inventory and Cross-Training in Modern Manufacturing
University of Michigan - Stephen M. Ross School of Business
Madhav V. Rajan
affiliation not provided to SSRN
Richard E. Saouma
University of California, Los Angeles (UCLA) - Anderson School of Management
Journal of Accounting Research, Vol. , Issue , pp. -, May 2009
This paper shows that major components of modern manufacturing processes, such as inventory management and cross-training, play a significant control role. In our model, workers possess information that is critical to efficient ongoing operations. An organizational design that motivates workers to optimally apply this information leverages both the production schedule and worker-management communication. Management's use of these controls results in work-in-process (WIP) inventory that appears excessive from a pure job-scheduling perspective, but is optimal when control issues are considered. Empirical work testing pure job-scheduling theories of modern manufacturing practices have yielded mixed results. We provide control-related interpretations for these empirical findings, and also provide novel predictions regarding the link between inventory levels and the nature of operational information asymmetries. Overall, our model highlights the importance of recognizing both control and scheduling issues when analyzing production processes.
Number of Pages in PDF File: 44Accepted Paper Series
Date posted: June 16, 2009
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