Inventory control in the Japanese vehicle industry
by Andre Varella Mollick
International Journal of Technology, Policy and Management (IJTPM), Vol. 7, No. 1, 2007

Abstract: The Japanese vehicle industry has reduced the ratio of inventories to sales (I/S) over time. Compared with similar industries in the USA, such a reduction in I/S implies good inventory control, perhaps owing to the adoption of 'just-in-time' techniques. We employ physical data from the Japanese vehicle industry, covering monthly observations from January 1985 to December 1994, across large cars, large buses and small trucks. In contrast with the other two goods, the actual I/S ratio of large cars decreases over time and estimates of the inventory model suggest the desired I/S ratio is lower than actual ratios. These results are unchanged when one considers additional costs of holding inventories, incurred by several interest rate hikes by the Bank of Japan (BoJ) from May of 1989 until August of 1990. Results differ for large buses and small trucks, which reinforces the conjecture that movements in aggregate inventory numbers may give a misleading picture of changes in inventory management.

Online publication date: Wed, 31-Jan-2007

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