The Incentive Value of Inventory and Cross-Training in Modern Manufacturing

44 Pages Posted: 16 Jun 2009

See all articles by Venky Nagar

Venky Nagar

University of Michigan, Stephen M. Ross School of Business

Madhav V. Rajan

affiliation not provided to SSRN

Richard E. Saouma

MSU

Date Written: 2009-04-11

Abstract

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.

Suggested Citation

Nagar, Venky and RAJAN, MADHAV V. and Saouma, Richard E., The Incentive Value of Inventory and Cross-Training in Modern Manufacturing (2009-04-11). Journal of Accounting Research, Vol. , Issue , pp. -, May 2009. Available at SSRN: https://ssrn.com/abstract=1404873 or http://dx.doi.org/10.1111/j.1475-679X.2009.00341.x

Venky Nagar (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-647-3292 (Phone)
734-764-3146 (Fax)

MADHAV V. RAJAN

affiliation not provided to SSRN

No Address Available

Richard E. Saouma

MSU ( email )

East Lansing, MI 48824-1121
United States

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